H. Jacob Lager

Archive for the ‘Taxable sales’ Category

Show me! Missouri, international taxation and the Constitution

In International taxation, Taxable sales on January 17, 2013 at 4:38 pm

Missouri, international taxation and the Constitution

In an era of cloud transactions and electronic wallets, it’s sometimes easy to forget that familiar brick-and-mortar concepts typically govern the rules of taxation.

Case in point: recently published Missouri Department of Revenue letter ruling 7933 (August 10, 2012), in which the state determined automotive parts sold to a foreign customer were subject to sales tax because the title and risk of loss in passed in Missouri.

This is an important concept to remember for anyone selling goods abroad:  Where the sale is deemed to have occurred, matters.  Had the sale occurred outside of Missouri, the state would have been constitutionally prohibited from imposing a sales tax due because the Interstate Commerce Clause, the Foreign Commerce Clause and the Import-Export Clause operate to prevent states from impinging on free and open commerce among the several states themselves and among the United States and foreign countries.

So where did the Missouri sellers err?   The parties elected to have the foreign purchaser’s shipping agent pick up the parts from the Missouri seller directly.  By doing so, title and risk of loss to the parts passed in Missouri at the point of pick-up.  Consequently, the transaction did not depend on the exportation of the goods out of Missouri and did not constitute “foreign commerce.” Thus, the sales were simply a taxable Missouri sale.   Most states incorporate this constitutional exception into their sales tax regulations.   In this case, Missouri Regulation 144.030.2(1) specifically exempts from sales tax “such retail sales as may be made in commerce between this state and any other state of the United States, or between this state and any foreign country, and any retail sale which the state of Missouri is prohibited from taxing pursuant to the Constitution or laws of the United States of America.”

But if you’d like to rely on a less-exalted rule when planning your client’s next international transaction, it’s always good to ask the question, “Where are the goods when we actually part with title?” If the answer is “the state in which you do business,” you likely have a taxable sale.

If you’re looking for a different result, might be time to bring in a lawyer.

Photo by Doug Wallick