The Missouri Supreme Court has walked away from a quarter century’s worth of cases that had treated sales and use taxes as virtually the same thing.
In a 6-1 ruling on March 17, the court’s majority said an entity that buys products for the Drury Hotels chain can’t claim an exemption for items that hotel guests used in their rooms.
Following an audit, the Administrative Hearing Commission had found DI Supply LLC liable for about $613,000 in unpaid sales taxes plus interest on those items, which range from beds and furniture to DVD players and wall art.
The supplier argued that those items fell under the “resale” exemption of Missouri’s tax law. The items’ cost was factored into the price of the room, and guests had “the right to use, store or consume” those products during their stays.
The court’s majority, however, said Missouri’s sales tax law contains no such language about use by customers. Instead, that language comes from a separate statute for Missouri’s use tax — a separately defined tax that is imposed on out-of-state retailers for the privilege of doing business in Missouri.
The two taxes are similar — so much so, Judge W. Brent Powell wrote, that for “at least 25 years, this Court has cited use tax cases when analyzing sales tax resale exemptions, and vice-versa.” That made DI Supply’s argument “understandable,” but wrong.
“While this Court’s muddled analysis has caused understandable confusion, the language of the statutes is clear,” Powell wrote.
The definition of the term “sale” in the two taxes have different requirements. “As such, the employment of the use tax definition of ‘sale’ in sales tax resale exemption cases must no longer be followed,” he wrote.
Under the sales tax definition, the majority held, there must be a transfer of title or ownership before the items are considered to have been resold.
According to the opinion, the “long line of cases that unwittingly apply use tax definitions in sales tax cases” traces to a 1994 case, House of Lloyd Inc. v. Director of Revenue, which held that the two taxes’ exemptions “must carry an identical meaning.” In a solo dissent, Judge Zel M. Fischer counted at least five cases that now have been called into question.
Given the weight of that precedent, and that the legislature hasn’t seen fit to change the law in all of that time, Fischer said, the court should have allowed the exemption.
“Recognizing that the Kansas City Chiefs are now world champions for the first time in 50 years, I am compelled to say the principal opinion moves the goalposts on DI Supply and all others who have relied on this Court’s settled construction of the ‘sale at retail’ exemption,” Fischer wrote.
Carole Iles of Bryan Cave Leighton Paisner’s Jefferson City office, who argued on behalf of DI Supply, said she hopes the Department of Revenue would apply the ruling only to future cases, given the unexpected change in the law.
Iles said that although the ruling calls into question numerous precedents, it doesn’t outright overrule them, so their holdings still might be valid under some fact patterns.
“Complexity in the sales taxes law just makes it difficult to figure out what is taxable,” Iles said.