Construction Contractors (Rescinded March 30, 2001)

AUTHORITY: section 144.270, RSMo 1994. This rule was previously filed as rule nos. 18 and 25 Jan. 22, 1973, effective Feb. 1, 1973. S.T. regulation 010-10 was last filed Dec. 31, 1975, effective Jan. 10, 1976. Refiled March 30, 1976. Amended: Filed Aug. 13, 1980, effective Jan. 1, 1981. Rescinded: Filed Sept. 27, 2000, effective March 30, 2001. State ex rel. Otis Elevator Co. v. Smith, 212 SW2d 580 (Mo. banc 1948). Otis Elevator Company was in the business of designing, constructing, installing and repairing elevators in buildings. Respondent claimed there was no sales tax due to petitioner Smith because the materials used to construct new elevators or to modify existing elevators lost their character or status as tangible personal property and became a part of the real property coincidently with their delivery and attachment to the building. Respondent kept a title retention clause in his contract with the building contractor allowing him to retain title to the elevator until he was paid in full and if not, to remove the elevator. Judge Ellison held this clause prevented the tangible personal property from being joined with the realty. Absent this contractual clause, the court would have reached a different conclusion. Where the contract for installation of new elevators, and reconstruction or major repairs to existing elevators whereby elevator company retains title to materials until paid, the elevator company is liable for sales tax. Had the contract not contained the title retentions clause the elevator company would not be liable for sales tax. Where elevator company does repair work on existing elevators and supplies small parts which become part of the elevator, and does not retain title to the parts, the company is not subject to sales tax. The parts become part of the realty (see Air Comfort Service, Inc. v. Director of Revenue, Case No. RS-83-1982 (A.H.C. 4/25/84) and Marsh v. Spradling, 402 SW2d 537 (Mo. banc 1976)). State ex rel. Thompson-Stearns-Roger v. Schaffner, 489 SW2d 207 (Mo. banc 1973). The legislature’s repeal of old section 144.261 and enactment of new section 144.261 abolished the need for review by the tax commission before judicial review could be sought. Act can only properly be held to have intended to restore the prior system of direct judicial review, without intervening administrative review, of the director’s (of revenue) decisions in sales tax matters. Therefore, after the director had rejected claimant’s request for refund of sales and use tax, claimant was entitled to direct judicial review by mandamus, without need to seek review of decision by State Tax Commission. In Marsh v. Spradling, 537 SW2d 402 (Mo. banc 1976), where the installation of the cabinets was an integral part of the contract for sale, the cabinets installed by contractor became part of the real estate under the doctrine of fixtures. The time of transfer of title was upon transfer of the real estate and no transfer of tangible personal property subject to the sales tax law occurred. United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373 (1982). New Mexico’s sales tax was not invalid as applied to purchases made by contractors having contracts with the federal government for construction and repair work on governmentowned property, even where title passed directly from vendors to the federal government. Bath Antiques v. Director of Revenue, Case No. RS-80-0161 (A.H.C.8/17/82). Sales between parent corporations and subsidiary corporations are not exempt “interdepartmental transfers” as defined in 12 CSR 10-3.140(1). They are taxable sales. Overland Steel, Inc. v. Director of Revenue, 647 SW2d 535 (Mo. banc 1983). There were two issues in this case. The first was whether a taxpayer could claim a sales tax exemption for certain steel if sold, on the grounds that the purchasers were to use it in pollution control or plant expansion projects. The second was whether or not the transfer of steel to certain customers in Kansas was a sale subject to sales tax under the Commerce Clause of the United States Constitution. With respect to the first issue, the court found that the taxpayer had the burden of establishing that it was exempt from sales tax, and its failure to produce sales tax exemption certificates, coupled with the dearth of testimony concerning the exempt activities of taxpayer, fails to meet that burden. With respect to the second issue, the court found that when property is purchased subject to a resale certificate, the purchaser becomes liable for sales tax if the property is not resold. In this case the court found that because the taxpayer used the steel in question in its capacity as a contractor there was no resale. Therefore, the taxable event was the taxpayer’s original purchase of the steel in Missouri. It was wholly irrelevant that the construction contract pursuant to which the steel was used was performed in Kansas. There was no violation of the Commerce Clause, and therefore, taxpayer was liable for tax. Air Comfort Service, Inc. v. Department of Revenue, Case No. RS-83-1982 (A.H.C. 4/25/84). The issue in this case as whether the mark-up which a heating and air conditioning contractor collected on replacement parts it installed was subject to sales tax. None of the parts were of such a nature that removal of the defective parts would cause substantial damage to the freehold. At issue were belts, switches, freon and certain motors. The taxpayer’s position was that the parts in question became a fixture upon installation. This would result in the sales falling under the rule for contractor’s materials under which the contractor is the final purchaser and consumer of the personal property (and therefore the mark-up would not be taxable). The commission found the determinative factor to be the point at which title passes. The court looked to the three-part test set out in Marsh v. Spradling, 537 SW2d 403 (Mo. banc 1976). Those elements are: 1) physical annexation to the freehold, 2) the adaption of the article to the location and 3) the intent of the annexor at the time of the annexation. The commission first found that parts (1) and (2) of the Marsh test were met because the parts were physically annexed to and adapted to the freehold. The commission then looked to State ex rel. Otis Elevator Co. v. Smith, 212 SW2d 580 (Mo. banc 1948) and concluded that the third test (the intent of the annexor at the time of annexation) had been met. In that case, because the elevator company had not retained title to the materials in question, it was found that the annexor intended the article to be adapted to and annexed to the freehold at the time of installation. The property in question was therefore part of the contract and the mark-up thereon was not taxable. In the case at hand, the heating and air conditioning company had not kept title to the property, and therefore the contractor’s mark-up was not subject to sales tax. Planned Systems Interiors, Ltd. v. Director of Revenue, Case No. RS-85-0065 (A.H.C. 7/1/86). The petitioner’s theory was that it was making a sale to an agency of the United States government and could not be required to pay sales tax. The Administrative Hearing Commission rejected petitioner’s contentions and found that the taxpayer had a contractual relationship only as a subcontract with K & S, the primary contractor and that the taxpayer sold the workstations to K & S pursuant to their contract. Under the department’s regulations 12 CSR 10-3.028 and 12 CSR 10-3.262, this sale was subject to sales tax. Broski Brothers, Inc. v. Director of Revenue, Case No. RS-85-0063 (A.H.C. 1/30/87). The Administrative Hearing Commission followed Overland Steel, Inc. v. Director of Revenue, 647 SW2d 535 (Mo. banc 1983) by ruling that a dual operator’s purchases of inventory materials from Missouri suppliers for delivery in Missouri but subsequently removed for use in out-of-state construction jobs are subject to Missouri sales tax. This is true even though the outof-state construction jobs may be exempt from sales tax in that out-of-state jurisdiction. Builders Glass & Products Co. v. Director of Revenue, Case No. RS-85-0453 (A.H.C. 5/13/87). The assessments at issue dealt with transactions between Builders Glass & Products and various sales tax exempt religious and charitable organizations. The Administrative Hearing Commission found that the petitioner as a contractor should have paid sales tax on its purchases of supplies and materials used in completing its contracts. Therefore, the Department of Revenue did properly impulse tax upon the purchase by petitioner of materials used and consumed by it as a contractor and the tax was properly collectable directly from the taxpayer who had purchased the materials under an improper claim of exemption. Becker Electric Company, Inc. v. Director of Revenue, 749 SW2d 403 (Mo. banc 1988). A purchaser was determined to be the person who acquires title to, or ownership of, tangible personal property, or to whom is tendered services, in exchange for a valuable consideration. Becker was not the purchaser here because the materials were billed to the Housing Authority and the consideration was paid by the Housing Authority. If the materials are billed to the exempt organization and paid for from funds of the exempt organization, then the purchase is exempt if the materials are used in furtherance of the exempt purpose of the organization.