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Manufacturer’s Corner: Delivery Terms Have Important Tax Implications for Missouri Manufacturers

Well, the Manufacturer’s Corner is back, and I couldn’t be happier about it.  Welcome!  Let’s jump right back into things, shall we?

Today’s column is prompted by a recent decision by the Supreme Court of Missouri,[1] in which the Court denied a Missouri manufacturer a sales tax refund.  Missouri imposes a 4% tax on “every retail sale in this state of tangible personal property.”  The manufacturer conducted an audit and realized it paid sales taxes on a bunch of trade show displays it sold for out-of-state use.  Understandably enough, it sought a refund for those taxes. 

The Court said “no.”  And the trouble was with the manufacturer’s delivery terms.  The manufacturer’s standard terms and conditions provided delivery was to be made “F.O.B. manufacturer.”  Although there was no evidence in the record that the standard terms and conditions actually were employed in the sales at issue, the Court found they constituted sufficient evidence of the parties’ “course of dealing” such that they became part of the parties’ agreement.[2]

The trouble is, Missouri’s enactment of the Uniform Commercial Code says that when delivery is to be made FOB Seller’s Place of Business, as here, title to the goods passes at the time of delivery to the carrier who will deliver them to the buyer.[3]  In this case, of course, the manufacturer tendered the displays to the carrier in Missouri.  Title therefore transferred in Missouri, and the sale was a “retail sale in [Missouri] of tangible personal property.”  No refund.

Interestingly, Missouri’s regulations specify that, “[u]nless otherwise agreed by the parties, when a Missouri seller delivers tangible personal property to a third-party common or contract carrier for delivery to an out-of-state location, title does not transfer in Missouri and the sale is not subject to Missouri sales tax.”  The Court declined to apply the regulation in the manufacturer’s favor, holding first that the regulations must yield to Missouri’s enactment of the UCC, and second that the parties impliedly agreed to passage of title at another point when they provided for delivery “F.O.B. manufacturer” without specifying that title would not transfer until the goods were out of state.  Considering, of course, that the tax applies only to goods, and that sales of goods are governed by the UCC, it is unclear what this regulation is intended to do.  In other words, the Court’s first reason for refusing to apply the regulation seems sound enough, but the second is a bit peculiar.

So, mark this as yet another reason to pay close attention to your shipping terms.  They affect more than you expect.

[1] VisionStream, Inc. v. Director of Revenue, 465 S.W.3d 45 (Mo. banc 2015).

[2] This is not really how “course of dealing” works, by the way.  But the Court could have reached the same outcome through appropriate means, so no harm no foul.

[3] Unless the parties specifically agree otherwise.