12 CSR 10-112.300 - Sales to the United States Government and Government Contractors
PURPOSE: This amendment updates statute reference.
PURPOSE: This rule explains the tax consequences of transactions involving the United States government and government contractors including the exemptions and exclusions provided by sections 144.030.1 and 144.030.2(6), RSMo.
(1) In general, sales
to the United States government are exempt from tax. Tax does not apply to
items purchased by government contractors for resale to the United States
government. In addition, tangible personal property used exclusively in the
manufacturing, modification or assembling of products sold to the United Sates
government is exempt from tax.
(2)
Definition of Terms.
(A) Government
contractor-a business or individual which enters into an agreement with the
United States government to provide products or services to the government in
exchange for payment. This includes businesses or individuals that contract
with the United States government to operate facilities owned by the United
States government. As used in this regulation, this term is not limited to
businesses that perform improvements to real property (i.e., construction
contractors).
(B) Ownership-the
right to exercise dominion and control over property. A person who has the
right to designate who is to receive title to the property has an ownership
interest in the property.
(C)
Purchaser-a person who receives title or ownership to property in return for
payment or consideration.
(D)
United States government-any entity comprising a part of the government of the
United States of America, including but not limited to, any United States
government agency and any branch of the armed forces of the United States.
Federal savings and loan associations and national banks are not included in
this definition.
(3)
Basic Application of the Tax.
(A) Sales to
the United States government are exempt from tax under the doctrine of
intergovernmental immunity and section
144.030.1, RSMo, which provides
an exemption from tax for any transaction which the state of Missouri is
prohibited from taxing under the Constitution or laws of the United States.
This exemption applies only to sales in which the United States government is
the purchaser.
1. If a government contractor
receives title or ownership to property to be used in the performance of a
government contract, the government contractor (not the United States
government) is the purchaser of the property. The sale is not exempt from tax
under the doctrine of intergovernmental immunity.
2. When property is purchased pursuant to a
government contract or purchase order that provides that title to the property
will pass directly from the seller to the United States government, and the
United States government also controls the disposition and use of the property
so that the contractor does not obtain ownership to the property, then the
United States government is the purchaser of the property for sales tax
purposes. The sale is exempt from tax. The exemption applies in these
circumstances, even if the government contractor remits payment to the seller
for the property.
(B) The
resale exclusion applies to property purchased by government contractors and
resold to the United States government. The purchase of property for resale is
not subject to tax; and the resale of property by a government contractor to
the United States government is also not subject to tax.
1. Some United States government contracts
incorporate standard contract clauses from the Federal Acquisition Regulations
or similar contract clauses that state that title to property purchased by the
government contractor pursuant to the contract shall vest in the United States
government. The transfer of title under these title vesting clauses can result
in a resale of the property by the government contractor to the United States
government.
2. In some cases the
cost of the property purchased by a government contractor is allocated among a
number of different contracts. Under these circumstances, the resale exclusion
would apply only to that portion of the cost that is allocated to contracts
that include the title vesting clauses. Under the title vesting clauses, the
United States government does not receive title to property that is leased by a
government contractor for use in a government contract, since the government
contractor does not receive title to the leased property. The resale exclusion
does not apply to property leased for use in the performance of a government
contract.
(C) Tangible
personal property which is used exclusively in the manufacturing, processing,
modification or assembling of products to be sold to the United States
government is exempt from tax pursuant to section
144.030.2(6),
RSMo.
1. This exemption does not apply to
property used for any functions other than manufacturing, processing,
modification or assembling, even if such use is minor. Nor does it apply to
property used, even partially, for functions relating to the production of
products for customers other than the United States government.
2. This exemption applies to any item of
tangible personal property that otherwise qualifies for the exemption,
including machinery, equipment, parts, materials and supplies.
(4) Examples.
(A) The U.S. Department of Agriculture
purchases desks and office supplies for use in its offices. The sale is exempt
from tax under the doctrine of intergovernmental tax immunity.
(B) A corporation enters into a contract with
the U.S. Army to operate a plant where ammunition will be produced. The
contract gives the Army the right to control the use and disposition of any
property purchased in connection with the contract. The contract incorporates a
title vesting clause found in Federal Acquisition Regulation 52.245-5. The
corporation orders bins that will be used for storing inventory in a warehouse
that is part of the facility. The corporation orders the bins using purchase
orders that state the U.S. Army will receive title to the bins directly from
the seller. The corporation pays the seller for the bins, and is later
reimbursed for this expense by the Army. Under these facts, the Army is the
purchaser of the bins, and the transaction is exempt from tax.
(C) A corporation enters into a contract with
the U.S. Air Force requiring the corporation to build and deliver six (6)
airplanes. The contract incorporates the title vesting clause found in Federal
Acquisition Regulation 52.232-16. The corporation also manufactures airplanes
for commercial airlines. After it signs the Air Force contract, the corporation
purchases office supplies that cost ten thousand dollars ($10,000). Based on
allocation formulas that the Air Force reviews and approves, one-tenth (1/10)
of this expense ($1,000) is charged to the Air Force contract. The remaining
costs are not charged to government contracts. The corporation has purchased
one-tenth (1/10) of the office supplies for resale to the Air Force, and owes
no tax on one thousand dollars ($1,000). The corporation owes tax on the
remaining nine thousand dollars ($9,000) of this purchase.
(D) The same corporation leases forklifts for
use in its plant. Some of the forklifts are used from time-to-time in
connection with the Air Force contract. Based on allocation formulas that the
Air Force reviews and approves, one-twentieth (1/20) of the charges for leasing
the forklifts is charged to the Air Force contract. The resale exclusion does
not apply to this transaction. The lease payments are taxable unless some other
exemption to tax applies to the lease (e.g., the lease payments may be exempt
because the lessor has paid tax on its purchase of the forklifts pursuant to
section 144.020.1(8),
RSMo).
(E) The same corporation
purchases special paints and adhesives that are used in the manufacture of the
Air Force airplanes, and for no other purpose. These supplies are exempt from
tax under section 144.030.2(6),
RSMo.
Notes
*Original authority: 144.270, RSMo 1939, amended 1941, 1943, 1945, 1947, 1955, 1961; and 144.705, RSMo 1959.
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
PURPOSE: This rule explains the tax consequences of transactions involving the United States government and government contractors including the exemptions and exclusions providedby sections 144.030.1, 144.010.1(9) and 144.030.2(6), RSMo.
(1) In general, sales to the United States government are exempt from tax. Tax does not apply to items purchased by government contractors for resale to the United States government. In addition, tangible personal property used exclusively in the manufacturing, modification or assembling of products sold to the United Sates government is exempt from tax.
(2) Definition of Terms.
(A) Government contractor-a business or individual which enters into an agreement with the United States government to provide products or services to the government in exchange for payment. This includes businesses or individuals that contract with the United States government to operate facilities owned by the United States government. As used in this regulation, this term is not limited to businesses that perform improvements to real property (i.e., construction contractors).
(B) Ownership-the right to exercise dominion and control over property. A person who has the right to designate who is to receive title to the property has an ownership interest in the property.
(C) Purchaser-a person who receives title or ownership to property in return for payment or consideration.
(D) United States government-any entity comprising a part of the government of the United States of America, including but not limited to, any United States government agency and any branch of the armed forces of the United States. Federal savings and loan associations and national banks are not included in this definition.
(3) Basic Application of the Tax.
(A) Sales to the United States government are exempt from tax under the doctrine of intergovernmental immunity and section 144.030.1, RSMo, which provides an exemption from tax for any transaction which the state of Missouri is prohibited from taxing under the Constitution or laws of the United States. This exemption applies only to sales in which the United States government is the purchaser.
1. If a government contractor receives title or ownership to property to be used in the performance of a government contract, the government contractor (not the United States government) is the purchaser of the property. The sale is not exempt from tax under the doctrine of intergovernmental immunity.
2. When property is purchased pursuant to a government contract or purchase order that provides that title to the property will pass directly from the seller to the United States government, and the United States government also controls the disposition and use of the property so that the contractor does not obtain ownership to the property, then the United States government is the purchaser of the property for sales tax purposes. The sale is exempt from tax. The exemption applies in these circumstances, even if the government contractor remits payment to the seller for the property.
(B) The resale exclusion applies to property purchased by government contractors and resold to the United States government. The purchase of property for resale is not subject to tax; and the resale of property by a government contractor to the United States government is also not subject to tax.
1. Some United States government contracts incorporate standard contract clauses from the Federal Acquisition Regulations or similar contract clauses that state that title to property purchased by the government contractor pursuant to the contract shall vest in the United States government. The transfer of title under these title vesting clauses can result in a resale of the property by the government contractor to the United States government.
2. In some cases the cost of the property purchased by a government contractor is allocated among a number of different contracts. Under these circumstances, the resale exclusion would apply only to that portion of the cost that is allocated to contracts that include the title vesting clauses. Under the title vesting clauses, the United States government does not receive title to property that is leased by a government contractor for use in a government contract, since the government contractor does not receive title to the leased property. The resale exclusion does not apply to property leased for use in the performance of a government contract.
(C) Tangible personal property which is used exclusively in the manufacturing, processing, modification or assembling of products to be sold to the United States government is exempt from tax pursuant to section 144.030.2(6), RSMo.
1. This exemption does not apply to property used for any functions other than manufacturing, processing, modification or assembling, even if such use is minor. Nor does it apply to property used, even partially, for functions relating to the production of products for customers other than the United States government.
2. This exemption applies to any item of tangible personal property that otherwise qualifies for the exemption, including machinery, equipment, parts, materials and supplies.
(4) Examples.
(A) The U.S. Department of Agriculture purchases desks and office supplies for use in its offices. The sale is exempt from tax under the doctrine of intergovernmental tax immunity.
(B) A corporation enters into a contract with the U.S. Army to operate a plant where ammunition will be produced. The contract gives the Army the right to control the use and disposition of any property purchased in connection with the contract. The contract incorporates a title vesting clause found in Federal Acquisition Regulation 52.245-5. The corporation orders bins that will be used for storing inventory in a warehouse that is part of the facility. The corporation orders the bins using purchase orders that state the U.S. Army will receive title to the bins directly from the seller. The corporation pays the seller for the bins, and is later reimbursed for this expense by the Army. Under these facts, the Army is the purchaser of the bins, and the transaction is exempt from tax.
(C) A corporation enters into a contract with the U.S. Air Force requiring the corporation to build and deliver six (6) airplanes. The contract incorporates the title vesting clause found in Federal Acquisition Regulation 52.232-16. The corporation also manufactures airplanes for commercial airlines. After it signs the Air Force contract, the corporation purchases office supplies that cost ten thousand dollars ($10,000). Based on allocation formulas that the Air Force reviews and approves, one-tenth (1/10) of this expense ($1,000) is charged to the Air Force contract. The remaining costs are not charged to government contracts. The corporation has purchased one-tenth (1/10) of the office supplies for resale to the Air Force, and owes no tax on one thousand dollars ($1,000). The corporation owes tax on the remaining nine thousand dollars ($9,000) of this purchase.
(D) The same corporation leases forklifts for use in its plant. Some of the forklifts are used from time-to-time in connection with the Air Force contract. Based on allocation formulas that the Air Force reviews and approves, one-twentieth (1/20) of the charges for leasing the forklifts is charged to the Air Force contract. The resale exclusion does not apply to this transaction. The lease payments are taxable unless some other exemption to tax applies to the lease (e.g., the lease payments may be exempt because the lessor has paid tax on its purchase of the forklifts pursuant to section 144.020.1(8), RSMo).
(E) The same corporation purchases special paints and adhesives that are used in the manufacture of the Air Force airplanes, and for no other purpose. These supplies are exempt from tax under section 144.030.2(6),
RSMo.
Notes
*Original authority: 144.270, RSMo 1939, amended 1941, 1943, 1945, 1947, 1955, 1961; and 144.705, RSMo 1959.