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Missouri Department of Revenue

Jay Nixon, Governor Alana M. Barragn-Scott, Director

LR 6877
Taxability of Custom Made Cabinetry, Labor, & Parts
August 17, 2011 Dear Applicant: This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated June 15, 2011. The facts as presented in your letter ruling request are summarized as follows: Applicant is a custom cabinet shop in Missouri. Applicant designs and builds cabinetry for homes and businesses. Approximately 83% of Applicants total sales are cabinetry that is installed or permanently affixed to real property and 15% of total sales are free-standing furniture. The remainder is comprised of repair labor and replacement parts.

ISSUE 1:
Are Applicants sales of cabinetry that Applicant installs or permanently affixes to real property subject to sales tax?

RESPONSE 1:
No. Applicants sales of cabinetry that Applicant installs or permanently affixes to real property are not subject to sales tax if title to the cabinetry transfers after installation or affixation. Section 144.020.1(1), RSMo, imposes a sales tax on the privilege of making sales of tangible personal property at retail in this state. Missouri Code of State Regulations 12 CSR 10-112.010 (3)(A) states: Title TransferIf title passes from the contractor to the purchaser before attachment of the tangible personal property to real property, the contractor does not pay tax on its purchase, but must collect tax on the sale price of the item. If title passes after the attachment, the contractor is subject to tax on its purchase of the tangible personal

property and does not collect tax on its transfer of ownership or title of the item. In general, title passes after installation is complete, unless the contractor and purchaser expressly agree otherwise. Unless Applicant has a contract or any other document that provides that title to the cabinetry passes to its customer prior to installation or fixation, title passes after the cabinetry becomes part of the real property. Sales tax does not apply to sales of cabinetry to Applicants customers that Applicant installs onto real property. Therefore, Applicant should not collect sales tax from its customer on sales of cabinetry it installs.

ISSUE 2:
Are Applicants sales of cabinetry that Applicant does not install or permanently affix to real property subject to sales tax?

RESPONSE 2:
Yes. Applicants sales of cabinetry that Applicant does not install or permanently affix to real property are subject to sales tax. See Response 1.

ISSUE 3:
Are Applicants purchases of materials that are used or consumed in manufacturing cabinetry that Applicant installs or permanently affixes to real property exempt from state sales and use tax and local use tax, but subject to local sales tax under Section 144.054, RSMo?

RESPONSE 3:
Yes. Applicants purchases of materials that are used or consumed in manufacturing cabinetry that Applicant installs or permanently affixes to real property are exempt from state sales and use tax and local use tax, but subject to local sales tax under Section 144.054, RSMo. Section 144.054.2, RSMo, provides an exemption from state sales and use taxes and local use taxes for machinery, equipment, and materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product. The exemption in this section does not apply to local sales tax. Therefore, Applicants purchases of materials that are used or consumed in manufacturing cabinets are exempt from state sales and use tax and local use tax under Section 144.054, RSMo. However, purchases of these materials are subject to local sales tax.

ISSUE 4:

Are Applicants charges for repair labor that is listed separately on invoices subject to sales tax?

RESPONSE 4:
No. Applicants charges for repair labor that is listed separately on invoices are not subject to sales tax. Section 144.020.1, RSMo, imposes sales tax on all retail sales of tangible personal property and certain enumerated services. Repair services are not one of the enumerated taxable services. Applicants charges for labor for repair services are not for tangible personal property and are not services that are subject to sales tax. Therefore, Applicants charges for repair labor are not subject to sales or use tax.

ISSUE 5:
Are Applicants charges for parts used in the repair of cabinetry that is not installed or permanently affixed to real property subject to sales tax?

RESPONSE 5:
Yes. Applicants charges for parts used in the repair of cabinetry that is not installed or permanently affixed to real property are subject to sales tax. The charges for the parts are separately stated on the invoices as sales to the customers. Applicant should collect sales tax from its customers on the receipts from the sale of the parts. The total charge for parts and labor are subject to sales tax if they are not separately stated on the invoice. See Response 5.

ISSUE 6:
Are Applicants purchases of parts used in the repair of cabinetry that is installed or permanently affixed to real property subject to sales or use tax?

RESPONSE 6:
Yes. Applicants purchases of parts used in the repair of cabinetry that is installed or permanently affixed to real property are subject to sales or use tax. Missouri Code of State Regulations 12 CSR 10-112.010(1) provides: In general, a contractor is the final user and consumer of the materials and supplies used and consumed in fulfilling a construction contract and which become a part of a

completed real property improvement. Consequently, persons selling materials and supplies to a contractor are subject to tax on the gross receipts from all such sales because the purchase is not for resale as tangible personal property. Missouri Code of State Regulation 12 CSR 10-112.010(2)(A) also defines a contractor as [a]ny person entering into an agreement to improve, repair, replace, erect or alter real property. Purchases of parts used in the repair of real property are subject to sales or use tax. Therefore, Applicants purchases of parts to repair cabinetry that is installed or permanently affixed to real property are subject to sales or use tax. This letter ruling is binding upon the Department of Revenue with respect to Applicant for three (3) years from the date of this letter and is subject with respect to changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable. Should additional information be needed, please contact Legal Counsel Christopher R. Fehr, General Counsels Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573751-0961), or me. Sincerely, Alana M. Barragn-Scott