Missouri – Taxability of Lease Payments for Property Purchased Out of State

SALT Report 2508 – The Missouri Department of Revenue issued a letter ruling regarding the taxability of monthly lease payments. In this case, the Taxpayer entered into a lease agreement with a Missouri Bank to finance its purchases of business equipment for use outside Missouri. The Bank purchased the equipment from an out-of-state vendor and paid that state the full amount of tax due.

Several years into the lease agreement, the Taxpayer moved the leased equipment into Missouri. As a result, the Bank began charging the Taxpayer Missouri sales tax on the monthly lease payments, in addition to a prorated amount for the use tax that was originally paid to the other state. The Taxpayer requested guidance as to whether the monthly lease payments were subject to sales tax once the equipment was moved into Missouri.

In its response the Department referred to the following regulations:

  • Section 144.610.1, RSMo, which imposes tax on “the privilege of storing, using or consuming within the state any article of tangible personal property,” and
  • Section 144.615(5), RSMo, which provides an exemption for tangible personal property which has been subjected to sales or use tax by any other state. However, if the tax rate paid to the other states is lower than the tax imposed in Missouri, the property will be subject to a tax equal to the difference between the two tax rates

Based on those regulations the Department determined that because the Bank paid the other state use tax when the equipment was originally purchased, the Taxpayer’s monthly lease payments are not subject to Missouri sales tax.

For Further Information

Missouri Department of Revenue – Letter Ruling #LR 7232