The Missouri Supreme Court ruled in January 2015 that certain delivery charges are taxable whether included in the sale price of an item(s) or separately stated on an invoice. Then, in July 2017, Governor Eric Greitens signed a bill exempting separately stated delivery charges. Is anyone else’s head spinning?

Separately stated delivery charges should be taxable

Let’s back up. Prior to 2016, shipping charges were generally considered exempt in Missouri so long as they were optional and stated separately on the invoice. When delivery was an expected part of the transaction, it was often taxable.

In 2010, Alberici Constructors requested a refund of use tax paid on charges to deliver a crane used in the construction of a new manufacturing plant. It argued the exemption was warranted because 1), Alberici had the option of selecting a third-party carrier, and 2), the delivery charge was separately stated. Regulation 12 CSR 10-103.600 states, “If the purchaser is not required to pay the service charge as part of the sale price of the tangible personal property, the amount paid for the service is not subject to tax if the charge for the service is separately stated. If the charge for the service is not separately stated, the entire sale price is subject to tax.”

Here the delivery charges were not only separately stated — they were charged by a different company altogether. Alberici rented the crane from one company and had it delivered by another.

Nonetheless, the Department of Revenue (DOR) denied the request and its decision was later upheld by the administrative hearing commission and the Missouri Supreme Court. According to the court opinion, “Alberici’s interpretation of the regulation misdirects the inquiry …. Taxability does not depend on whether the parties intended the charge for the service to be part of the sales price; taxability depends on whether the parties intended the provision of the service to be part of the sales transaction. See section 144.605(8), RSMo 2000.” A subtle distinction, but an important one.

In July 2016, the DOR mailed letters to businesses registered to sell and deliver tangible personal property in the state. The notice informed them of the Supreme Court decision and declared, “In general, if parties intend delivery to be part of the sale of tangible personal property, the delivery charge is subject to tax even when the delivery charge is separately stated.” In subsequent letter rulings (e.g., LR 7747) the DOR relied on the decision in Alberici Constructors, Inc. v. Director of Revenue to determine delivery charges were taxable.

Separately stated delivery charges should be exempt

This didn’t sit well with Senator Will Kraus, a man fed up with “bureaucratic overreach by the DOR.” He explained, “Over the years, it’s become increasingly common for our courts to hand down a ruling and then see the Department of Revenue reinterpret state tax law — without legislative approval and without any regard for the impact on hardworking Missouri families.”

Furthermore, the senator said this caused confusion: “In Missouri, we tax goods, not services. There were a lot of businesses that were confused.” They were also unhappy. Last November, voters overwhelmingly approved a constitutional amendment prohibiting the taxation of any services not subject to tax as of Jan. 1, 2015.

Sen. Kraus therefore authored Senate Bill 16, exempting “customer delivery charges that are stated separately from the sale price.” SB 16 received the signature of Gov. Eric Greitens on July 5 and took effect Aug. 28, 2017.

The exemption established by the measure extends to separately stated pizza deliveries, which is expected to cost the state approximately $3.2 million annually. It’s unclear how much sales tax revenue will decline overall as a result of the bill.

A fickle friend

One of the things I find most fascinating about this situation is that Alberici started the ball rolling by paying Missouri use tax on the delivery charges and then requesting a refund from the DOR. Had the company not paid the tax in the first place, or not requested a refund, would this issue have arisen?

And what will trigger the next sales tax change?

Sales tax is notoriously fickle: Delivery charges can be taxable one day and exempt the next. While this keeps me busy, it also adds to the complexity and confusion of sales tax — at least for businesses and individuals striving to be compliant.

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photo credit: lord enfield Marx, Speed Boy Delivery USA via photopin (license)