When a business operates in multiple locations in the same state, complex sales tax regulations can often present a challenge. Special local sales tax districts, such as a community improvement or transportation development district, can exacerbate the difference in sales tax rates for business locations in neighboring municipalities. The Missouri Private Letter Ruling No. LR 8262, issued on July 31, 2023, clarifies the sales tax obligations for businesses in these situations. The case involves a property owner operating a resort with properties in two different Missouri jurisdictions that feature varying local sales tax rates.
Facts of the Case
A resort predominantly operates in Locality A, but a portion of the property, a small collection of cottages that provide sleeping accommodations, is located in a neighboring municipality, Locality B. While guests must check in and check out of the cottages in Locality B, the resort’s management activities, reservation processes and payment handling all primarily take place in Locality A. Guests in the cottages travel to Locality A to enjoy amenities and activities provided by the resort. As a part of a community improvement district and transportation development district, Locality A imposes a special local sales tax that Locality B does not.
According to Mo. Code Regs. 10-117.100(3)(A)(5), services are subject to the local sales tax in effect where the services are rendered or delivered.
Determining Physical Location for Tax Collection
For local sales tax purposes, Missouri law states that retail sales are deemed consummated at the retailer’s primary business location. When a retailer operates from multiple locations participating in the same sale, the sale is sourced to the retailer’s primary location where the initial order was placed.
In this case, although guests check in and out of the cottages in Locality B, every other action, from the guests’ activities and accommodations to management activities and payment processing, takes place in Locality A. Based on the foregoing, the DOR states the District Tax in Locality A apply to the taxpayer’s reservations, including for those cottages outside Locality A.
The Private Letter Ruling clarifies these distinctions for taxpayers and offers clear insight that explains the reasoning for this particular tax treatment. The letter ruling binds the Department of Revenue for three years from the date of the letter’s publication. It is only subject to statutory changes by the General Assembly and interpretation of law changes by an administrative tribunal or the courts. If a change does occur, any taxpayer relying upon an outdated interpretation could be subjected to interest, penalties and additional taxes, so the interpretation should be reviewed regularly.
Anders State and Local Tax advisors closely monitor legislation and rulings impacting business owners and taxpayers to educate our clients about the latest tax regulations. For more information about how this ruling could impact your business, and the associated fees, contact Anders below.
Genesis Clay, tax associate, contributed to this article.All Insights