PURPOSE: This rule interprets the resale exemption in section 144.615(6), RSMo, and the resale exclusion in section 144.010.1(9), RSMo.

1. (1) In general, purchases of tangible personal property or taxable services are not subject to sales or use tax if purchased for ultimate sale at retail.

2. (2) Definition of Terms.

   1. (A) Purchase for resale—a purchase for ultimate sale at retail.
   2. (B) Sale—any transfer of title or ownership to tangible personal property or rendering of taxable service for consideration.
   3. (C) Sale at retail—a sale of tangible personal property or services for use or consumption by the purchaser that is taxable under section 144.020, RSMo.

3. (3) Basic Application of Tax.

   1. (A) A taxpayer may purchase tangible personal property or taxable services for resale if the purchase is for subsequent sale at retail. Purchases of tangible personal property or taxable services that are not subsequently transferred in transactions that constitute sales at retail are taxable at the time of purchase.
   2. (B) When tangible personal property is given away, tax must be paid at the time of purchase, unless there is a bargained for exchange between the seller and buyer and a direct quantitative connection between the giveaway and actual sales at retail.
   3. (C) The purchase of tangible personal property resold as real property or incidental to the rendering of a nontaxable service is taxable.
   4. (D) If a purchaser makes more than a nominal use of the tangible personal property before the resale takes place, the purchase is subject to tax.

4. (4) Examples.

   1. (A) A grocery store purchases bread and other food items from a wholesaler. Because the food items will be resold, the grocery store may purchase them without paying tax.
   2. (B) A grocery store purchases grocery bags. The grocery bags are provided only to customers who purchase merchandise. The grocery bags can be purchased exempt from tax because they are transferred to the customer as part of the sale of the merchandise.
   3. (C) An appliance store purchases a refrigerator for its own use. Tax is due on the purchase of the refrigerator even if the refrigerator is ultimately sold at retail after its use.
   4. (D) A taxpayer selling building materials purchases boxes and other packaging materials. These purchases are used to ship its products to its customers. The boxes and other packaging materials can be purchased exempt from tax as a purchase for resale.
   5. (E) A taxpayer sells custom software. The taxpayer’s purchases of compact discs and related packaging materials are subject to tax because custom software is the sale of a nontaxable service. Consequently, the compact discs and packing materials do not qualify as purchases for resale.
   6. (F) A taxpayer purchases boxes to store merchandise within the taxpayer’s warehouse. The boxes are not shipped to a customer. The purchase of the boxes is subject to tax.
   7. (G) A business advertises a buy one, get one free sale. The business does not have to pay tax at the time of purchase of the “free” item because it is subsequently resold as part of the sales transaction.
   8. (H) A professional baseball team gives promotional baseballs to the first 10,000 customers. The team should not pay tax on the purchase of the baseballs because tax is collected and remitted on the sale of the tickets.

AUTHORITY: sections 144.010(9) and 144.615(6), RSMo Supp. 2004 and 144.150, 144.270 and 144.705, RSMo 2000.* Original rule filed Sept. 27, 2000, effective March 30, 2001. Amended: Filed Aug. 26, 2005, effective Feb. 28, 2006. *Original authority: 144.010, RSMo 1939, amended 1941, 1943, 1945, 1947, 1974, 1975, 1977, 1978, 1979, 1981, 1985, 1988, 1993, 1996, 1998, 1999, 2001; 144.150, RSMo 1939, 1941, 1943, 1945, 1961, 1987, 1990, 1994; 144.270, RSMo 1939, amended 1941, 1943, 1947, 1955, 1961; 144.615, RSMo 1959, amended 1961, 1985, 1986, 2003, 2004; and 144.705, RSMo 1959. Kansas City Power & Light Co. v. Director of Revenue, 83 S.W.3d 548 (Mo. banc 2002). The taxpayer claimed a resale exemption for electricity purchased by hotels for use in guest rooms. The Court held that the hotels transferred the right to control the electricity when the guest was able to adjust the temperature. The guests pay consideration for that right when they pay for the hotel room because the cost of the electricity is “factored into” the cost of the room. Therefore, the sales of electricity to the hotels for use in the guest rooms were not subject to tax. The Court also affirmed the Administrative Hearing Commission’s calculation of the refund due based on a square footage analysis as “the best method available on the record before it.” The Court recognized, however, that there were substantial questions regarding whether such a measure would withstand scrutiny on a more complete record “in a future case.” Kansas City Royals Baseball Corp. v. Director of Revenue, 32 S.W.3d 560 (Mo. banc 2000). The taxpayer claimed a resale exemption for promotional items distributed to its paying customers at its baseball games. The promotional items were also given away to attendees who had complimentary tickets and if items were left after a game, people received them without paying any admission at all. The Court found that consideration was paid for the promotional items because the cost of the items was “factored into” the price of the tickets to see the game. The Court stated: “there is a direct connection between the ticket price charged the paid attendees who received the promotional items and the promotional items themselves.” Westwood Country Club v. Director of Revenue, 6 S.W.3d 885 (Mo. banc 1999), determined that meals and beverages served by Westwood, a private club not open to the public, were not sales at retail. Westwood could not claim a resale exemption on its purchases of food and beverages. The Court also found that Westwood did not owe sales tax on fees that it charged for use of its golf carts because it paid sales tax on its purchases of the golf carts. Aladdin’s Castle, Inc. v. Director of Revenue, 916 S.W.2d 196 (Mo. banc 1996), dealt with the taxation of prizes awarded to customers playing arcade games. Aladdin collected and remitted sales tax on tokens purchased by customers to play the arcade games. Aladdin purchased the prizes for resale and did not pay a tax. The Court found that Aladdin met the three factors set forth in Sipco, Inc. v. Director of Revenue and did not have to show that the cost of the prizes was specifically factored into the price of the sale of tokens to each customer to take advantage of the resale exemption. In Sipco, Inc. v. Director of Revenue, 875 S.W.2d 539 (Mo. banc 1994), the issue was whether dry ice used to package fresh pork products for transport to customers was exempt as a purchase for resale. The court held that the seller need not show the cost is specifically factored into the price of the goods in order to claim a resale exemption. The Court stated that “one need not be an accountant to understand that the value of the dry ice was factored into the total consideration paid for the pork.” In Spudich v. Director of Revenue, 745 S.W.2d 677 (Mo. banc 1988), a taxpayer purchased billiard tables for display and possible resale. The Supreme Court held that the exemption for resale was available only for items purchased solely for resale. The billiard tables in question were purchased primarily as display items to solicit orders. Any resale of the tables was incidental to their primary purpose. Resale only occurred if that particular table was the last of its kind in inventory or a customer wanted that specific table. The Court held the taxpayer’s purchases subject to use tax. R & M Enterprises v. Director of Revenue, 748 S.W.2d 171 (Mo. banc 1988), dealt with the taxation of samples. The Court noted that there was no quantitative connection between the furnishing of sample books to retailers and the purchase of fabric by retailers for their customers. Therefore, R & M was required to pay sales/use tax on their purchases of sample books.