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Kansas Contractors: Missouri Tax Rules May Bring Benefits

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If you are a Kansas City contractor, it’s very likely that you do business on both sides of the state line. For Kansas contractors, the Missouri rules regarding applicability of sales and use taxes are generally less complex, resulting in opportunities to minimize their overall tax liability. However, there are also a few pitfalls which need to be avoided.

The sales and use tax differences depend on the state in which the work is done, the type of work and even on the location of the contractor’s inventory. An overview of the differences in tax treatment between the two states can be found in the article "Missouri Contractors: Kansas Activity Can Add Tax Complexity".

Although materials used in Missouri are generally taxable, Kansas contractors should note that it is the position of the Kansas Department of Revenue that materials delivered to or stored in Kansas and ultimately used on a non-Kansas job are subject to Kansas sales tax when purchased or Kansas use tax upon withdrawal from inventory. Therefore, inventory stored in Kansas and ultimately used on a Missouri job is subject to Kansas tax and assuming the Kansas tax rate exceeds the Missouri rate, no Missouri sales or use tax is due.

An exception to the taxability of materials in Missouri is based on the Missouri Supreme Court decision in E & B Granite, Inc. v. Director of Revenue, 331 S.W.3d 314, 317 (Mo. Ban 2011), in which materials delivered into Missouri for further processing (in the cited case granite for the manufacture of custom granite counters) are not subject to the state portion of the Missouri use tax. Further, since the custom granite counters are real property upon transfer to the consumer, no tax is due on the sale. This creates a planning opportunity for a contractor doing business on both sides of the state line when making a decision of where to accept and store inventory purchased from a non-Missouri vendor.

Another difference between the states is the treatment of “pass-through” exemption. In Kansas, contractors are generally liable for tax on materials for contracts for governmental or other exempt entities, but in Missouri purchases of construction materials by a contractor to construct, repair or remodel facilities of exempt entities are exempt. Exempt entities include the US government, the state of Missouri and its political subdivisions and certain non-profit entities. Appropriate documentation from the exempt entity must be maintained to verify the exemption.

The application of these guidelines will vary depending on individual circumstances so it is best to consult a sales tax expert to ensure your issues are handled correctly.

Kathleen Lusk, CMI is the Founder and Managing Director of State Tax Resource, a state and local tax (SALT) consulting firm providing tax services to U.S. and multi-national businesses. Kathleen’s 30+ years of experience include dealing with complex state tax issues, specializing in indirect tax issues for the telecommunications, manufacturing and construction industries. Kathleen was formerly a partner with a “Big 4” firm. Prior to her Big 4 experience, Kathleen was the Director of Tax for a national telecommunications provider.

Comments or questions related to a post, may be submitted using the “Comment” feature below. Alternately, Consultation Requests may be submitted directly to Kathleen by using the orange "Request a Consultation" link on her Firm Profile page.

Other recent “Kansas (KS)” posts by Kathleen Lusk, CMI:

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Comments

1 Responses to Kansas Contractors: Missouri Tax Rules May Bring Benefits

  • Posted by Shelly on October 11, 2018 11:50am:

    Hello and Good Afternoon,

    I am new to the KCK and KCMO area. Is there any basic tax classes that would be beneficial to me. We do business in both areas. We use subs, rental equipment and everything is different depending on what state I am in.

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