Missouri Department of Revenue

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

LR 6885
Taxability of Pipe Purchased & Used in Construction
August 23, 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 27, 2011. The facts presented in your letter ruling request, telephone conversations with Legal Counsel Christopher Fehr, and Applicants web site are summarized as follows: Applicant is a Missouri company that provides total mechanical construction and maintenance services, including designing and installing piping and pumps to transfer water throughout buildings. Applicant purchases pipe from another company and welds couplings and does threading to prepare the pipe for installation. Applicant has a permanent facility located in Missouri where most of the fabricating of components occurs. Fabricating sometimes occurs at a job site or temporary facility. The temporary facility usually consists of renting a large space close to the job site and bringing in the necessary equipment to prepare the pipe for installation. Applicant has an agreement with its customers that title will pass once installation of the item is complete.

ISSUE 1:
Are Applicants purchases of materials used to prepare its pipe for installation and then installed on a customers property exempt from sales and use tax under Section 144.054.2, RSMo?

RESPONSE 1:
No. Applicants purchases of materials used to prepare its pipe for installation and then installed on a customers property are not exempt from sales and use tax under Section 144.054.2, RSMo.

Section 144.054.2 provides an exemption from state sales and use taxes and local use tax for electrical energy and gas, whether natural, artificial, or propane, water, coal, and energy sources, chemicals, machinery, equipment, and materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product. . . . The Missouri Supreme Court held in E & B Granite, Inc. v. Director of Revenue, 331 S.W.3d 314, 317 (Mo. banc 2011), that section 144.054.2 applies to products, whether or not they are eventually affixed to real property. In order to qualify for the exemption under Section 144.054, Applicant must manufacture a product. Applicant does not manufacture the pipe it installs. While Applicant does add couplings and threading to the pipe it uses, this does not create a new product. Therefore, Applicants purchases of materials used to prepare the pipe for installation and then installed on a customers property are not exempt from sales and use tax under Section 144.054.2.

ISSUE 2:
Are Applicants purchases of pipe, to which it adds couplings and threading, and that is sold to customers with installation subject to sales or use tax?

RESPONSE 2:
Yes. Applicants purchases of pipe to which it adds couplings and threading and that is sold to customers with installation are subject to sales or use tax. See Response No. 1.

ISSUE 3:
Are Applicants purchases of pipe, to which it adds couplings and threading, and that is sold to customers without installation subject to sales or use tax?

RESPONSE 3:
No. Applicants purchases of pipe to which it adds couplings and threading and that are sold to customers without installation are not subject to sales or use tax. Section 144.020.1, RSMo, imposes a sales tax upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state. Section 144.010.1(10), RSMo, defines sale at retail as: [a]ny transfer made by any person engaged in business as defined herein of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale in any form as tangible personal property, for a valuable consideration . . .

. Applicant purchases pipe to which it adds couplings and threading for resale to a customer. Because the purchase of the pipe is for resale, the purchase of the pipe is not a sale at retail to Applicant and is not subject to sales tax. Sales of the pipe to Applicants customers are subject to sales tax.

ISSUE 4:
Are Applicants sales of pipe where title passes after attachment to real property subject to sales and use tax?

RESPONSE 4:
No. Applicants sales of pipe where title passes after attachment to real property are not subject to sales and use tax. Applicant should not collect sales tax on the sale of an installed pipe if title to the pipe passes to its customer after installation. Applicant should pay sales or use tax on its purchase of a pipe that Applicant installs and also on the materials it uses to install the pipe. Section 144.020 imposes sales tax on the sale of tangible personal property. The sale of real property is not subject to sales tax. Missouri Code of State Regulations 12 CSR 10-112.010(3)(A) provides: If 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. Missouri Code of State Regulations 12 CSR 10-112.010(2)(A) defines a contractor as any person entering into an agreement to improve, repair, replace, erect or alter real property. Applicant sells installed pipe, which becomes attached to real property. Title to the pipe passes to the customer after being attached to the real property, and thereby loses its characteristic as tangible personal property at the time of attachment. Applicant is a contractor making improvements to the real property and should not collect sales tax from the customer. Unless Applicant has a contract with a customer that provides that title will pass before installation, Applicant is considered the final user of the pipe prior to it becoming part of the real property. As the final user of the pipe, Applicant should pay sales or use tax on its purchase of the pipe and the materials it uses to install the pipe.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory 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 Fehr, General Counsels Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573751-0961), or me. Sincerely, Alana M. Barragn-Scott