Sales Tax Articles
Sales Tax State Activity Update - October 2007
Missouri Weaves an Untangled Exemption for the Web
Background
A taxpayer located in Missouri charges an hourly rate for developing and maintaining web sites as well as performing other related marketing or computer related services for its clients.
The taxpayer owns two web sites. Web Site A is a free reunion web service in which members register to use this site. This site contains tools to help members contact old friends or plan class reunions. In the future, the taxpayer may offer additional services, such as access to photo galleries or viewing search statistics, and charge a fee for such services. Web Site A also includes links to other web sites that pay a referral fee to the taxpayer if a member clicks on their links.
Web Site B is a free movie, music, book, and game trading web service. Members use this web site to list items they would like to trade with other members.
A member will trade his or her item to another member for "trader points". "Trader points" may be used to request items from other members.
A member can also purchase "trader points" from the taxpayer so that the member will have enough "trader points" to purchase an item. One "trader point" is worth one dollar.
Web Site B also includes links and ads to other web sites that pay a referral fee to the taxpayer if a member clicks on their links.
If a member clicks on the link and purchases an item from that web site, the taxpayer will receive a referral commission for that sale. The taxpayer would also like to offer the ability to purchase gift cards worth "trader points" on this web site.
Ruling
It was ruled that the labor to design and maintain web sites is not a taxable service. Pursuant to Section 144.020.1, RS MO a sales tax is imposed, in relevant part, "upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state." The taxpayer's labor to design and maintain web sites is not the sale of tangible personal property and is not one of the enumerated services defined as sale at retail.
It was also ruled that the free services provided to its members on both web sites are not subject to sales tax because there is no enumeration involved; as a result, there is no sale. The referral fees were also exempt because providing a web site link is not a sale at retail. In addition the sale of gift cards is exempt because, the true object of the transaction is the ability to use taxpayer's services in the future. Since the true object is a nontaxable service, none of the sale price of the gift card is taxable.
The Letter ruling can be viewed on the Missouri Department of Revenue Website.
(Missouri Department of Revenue, Letter Ruling No. LR 3896, 07/13/2007)
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