Taxation Law in Missouri

John P. Barrie, Esquire

Sales Tax – Membership fees paid to use a dog park subject to tax. Hubb v. Director of Revenue, No. 13-0231 RS (Mo. AHC, February 26, 2014), Winn, C.

Taxpayer owned a dog exercise facility and dog owners would pay membership fees to use the facility. The director audited the Taxpayer and determined that the membership fees charged were subject to sales tax. Taxpayer paid the sales tax due under protest and filed an appeal with the Administrative Hearing Commission.

Director’s determination upheld. The commission found that the dog exercise facility was a “place of amusement and recreation” and therefore the fees were subject to sales tax pursuant to § 144.020.1(2), RSMo. The taxpayer unsuccessfully argued that the fees were not subject to tax because the purpose of the exercise facility was to provide health benefits to the dogs – the commission found that the recreational and amusement components of the facility were at least as prevalent as the health benefits.

Sales Tax – Purchases of electricity and natural gas energy used by grocery stores in operating ovens and related baking equipment not exempt from tax. Union Election Co., d/b/a Ameren Missouri v. Director of Revenue, No. 93083 (Mo. Banc, March 11, 2014) Stith, J.

Taxpayer sought a refund of sales tax paid on electricity and natural gas energy provided to grocery stores for operating ovens and related baking equipment on the basis that the energy costs were exempt under § 144.054.2, RSMo., as energy used in “processing” products. The Administrative Hearing Commission upheld the director’s denial of the refund claims.

Held: Affirmed.
Following Aquila Foreign Qualifications Corporation v. Director or Revenue, 362 S.W. 3d 1 (Mo. banc 2012), the Court held that “processing” does not include the in-store preparation of cooked goods for retail sale.

Sales tax – Purchases of products used in commercial  laundry operations not exempt from sales tax. AAA Laundry & Linen Supply Co. v. Director Revenue, No. 93331 (Mo. banc, March 11, 2014), Wilson, J.

Taxpayer operated a commercial laundry and purchased various cleaning supplies to clean uniforms and other items for its customers. The director determined that the taxpayer should have paid use tax for the soap and water treatment chemicals purchased from out-of-state vendors. The Administrative Hearing Commission determined that the purchases were exempt under § 144.054.2, RSMo. relating to chemicals used in “processing” a product and that the purchases of water treatment  were exempt under § 144.030.2(15) relating to “machinery” and “equipment” used solely for water pollution abatement.

Reversed. The Missouri Supreme Court, noting that exemptions are to be ‘strictly construed against the taxpayer,” and relying upon Unitog Rental Services, Inc. v. Director or Revenue, 779 S.W. 3d 568 (Mo. banc 1989), held that a commercial laundry is not engaged in “manufacturing” because laundering does not produce a new and different product and that the water treatment chemicals that are consumed during the treatment of its wastewater are not “equipment”.

Income Tax – Income from a “rabbi trust” used to fund a deferred compensation plan constitutes business income subject to apportionment. MINACT, Inc. v. Director of Revenue, No. 93162 (Mo. banc, April 15, 2014), Teitelman, J.

Taxpayer established a so-called “rabbi trust” to fund a deferred compensation plan for key executives and claimed the income earned in the trust was not business income and there for not apportionable to Missouri.  The Administrative Hearing Commission found in favor of the taxpayer.

Reversed. The Supreme Court found that the trust income was business income because it was used for “the current operational purpose of attracting and retaining key employees” and therefore was subject to apportionment in Missouri.

Sales Tax – Sales of balloon rides not subject to sales tax. Balloons Over The Rainbow, Inc. v. Director of Revenue, No. 93039 (Mo. banc, April 15, 2014), Breckenridge, J.

The taxpayer sold rides on untethered hot air balloons in the St. Louis area. It claimed its rides were not subject to sales tax because such taxes were prohibited by the federal Anti-Head Tax Act (“AHTA”) and also that it was not subject to use tax on out-of-state purchases because it was a “common carrier”. The Administrative Hearing Commission upheld the tax on the rides and also determined that the taxpayer was not a “common carrier.”

Held: Affirmed in part and reversed in part.
The Supreme Court found that because the taxpayer’s balloon rides involved “air commerce” the gross receipts from the sales of rides were prohibited from being taxed by reason of the AHTA. However, the court found that the taxpayer failed to prove that it was a “common carrier” because the record indicated that it controlled who was entitled to take the balloon rides.