In a recent letter ruling, the Department of Revenue addressed whether a vehicle lessor was required to collect and remit Missouri state and local sales tax on certain voluntary packages purchased as part of a motor vehicle lease. The packages, included but were not limited to, road hazard tire and wheel protection, key protection, extended service agreements, and prepaid maintenance plans. Some of the packages were separately stated on the customer’s invoice. Under Missouri law, a seller of tangible personal property is required to report its “gross receipts” to the Director of Revenue. “Gross receipts” is defined as “the total amount of the sale price of the sales at retail including any services other than charges incident to the extension of credit that are a part of such sales.” A regulation further provides that if a purchaser obtains a service as part of a transaction in which the true object is the purchase of tangible personal property, the entire sales price is taxable even if the charge for the service is separately stated.” The regulation defines the “true object” as “the real object the buyer seeks in making the purchase.”
The Department of Revenue concluded that packages included as part of the motor vehicle lease price (i.e., not separately stated) were subject to Missouri sales tax. In these instances, the true object of the transaction was the lease of a motor vehicle. Therefore, as the cost of these packages was included in the motor vehicle lease price, they were subject to Missouri sales tax. The Department also ruled that the separately-stated packages, including service agreements and maintenance plans, were subject to sales tax. Although a Missouri regulation specified that a separately-stated additional warranty may not be subject to sales tax, that example in the regulation was superseded by a Missouri Supreme Court case holding that the taxability of a service is determined by whether or not the parties intend the service to be part of the transaction. In the Department’s view, the taxpayer’s customers intended the separately-stated packages to be part of the lease transaction and therefore they were likewise subject to Missouri sales tax. Please contact John Griesdieck at 312-665-3024 with questions on Private Letter Ruling No. 7939.