Taxation Law in Missouri

John P. Barrie, Esquire

Sales Tax – Application of lower 1% rate of tax on retail sales of food explained. Krispy Kreme Doughnut Corporation v. Director of Revenue, No. 91471 (Mo. banc, December 20, 2011), Price, J.

Taxpayer sold donuts at its stores in Missouri and sought a refund for a portion of the sales tax collected and paid on the basis that the sales were subject to the lower 1% rate of tax on sales of retail food. Section 144.014, RSMo, provides that the lower rate does not apply to food or drink sold by any establishment where the gross receipts derived from the sale of food prepared for immediate consumption on or off the premises of the establishment constitutes more than 80% of the total gross receipts of that establishment, regardless of whether such prepared food is consumed on the premises of that establishment, including, but not limited to, sales of food by any restaurant, fast food restaurant, delicatessen, eating house or café (“80%/20% test”). The director denied the refund claim on the basis that the claim did not qualify under § 144.190, RSMo, and the administrative hearing commission affirmed the director’s determination on the parties’ cross-motions for summary decision on the basis that more than 80% of the taxpayer’s gross receipts were derived from sales of food prepared for immediate consumption on or off the premises.

Held: Remanded.
The court found that the administrative hearing commission did not properly apply § 144.014, RSMo, and held that, for purposes of the 80%/20% test, “food prepared . . . for immediate consumption on and off the premises” includes “all food that is eaten at the place of preparation and purchase, while traveling away from the place of preparation and purchase, and immediately upon arrival at another location without any further preparation” and directed the administrative hearing commission to conduct additional proceedings to determine whether the taxpayer’s sales failed the 80%/20% test based upon the above definition.

Business license tax - class action by municipality to collect tax on telephone service providers permitted. State ex rel., et al. v. Jamison, No. 91631, (Mo. banc, January 17, 2012), Stith, J.

The City of Winchester filed a class action against Charter Communications to require Charter and other telephone service providers to pay the business license tax on their gross receipts.  Charter filed a motion to strike the class action claims on the basis that § 71.675, RSMo, bars cities and towns from serving as class representatives to enforce or collect business license taxes imposed on telecommunications companies. The trial court granted the motion and the city appealed to the Supreme Court of Missouri.

Reversed. In reversing the trial court, the Court found that § 71.675, RSMo, did not amend the class action procedural rules set forth in Rule 52.08, and therefore the circuit court exceeded its authority in striking the city’s class action. Section 71.675, RSMo, was found to violate Article V, Section 5 of the Missouri Constitution because it amended a procedural rule court. Judge Price filed a dissent finding that § 71.675, RSMo, did not violate the Missouri Constitution.

Use Tax - computer part purchases did not satisfy “temporary storage” rule and thus subject to use tax. Custom Hardware Engineering & Consulting, Inc. v. Director of Revenue, No. 91415 (Mo. banc, January 17, 2012), Teitelman, C.J.

Taxpayer, which provided maintenance and repair services for mainframe computers, purchased computer parts from out-of-state vendors for use in fulfilling its maintenance contracts.  The director of revenue determined that the purchases were subject to use tax, finding that the testing and certification of the parts in Missouri, prior to delivery to its customers, constituted a taxable use and that, therefore, the “temporary storage” exception in § 144.605(13), RSMo, did not apply.  The administrative hearing commission affirmed the director’s determination.

Affirmed. The Supreme Court found that the taxpayer, in testing and certifying the parts prior to shipment to its customers, did more than simply warehouse the parts in Missouri for temporary storage and re-shipping. The Court also rejected the taxpayer’s claim that it was entitled to the resale exemption on the basis that the taxpayer did not purchase the parts for a subsequent taxable sale.

Local sales tax - out-of-state purchase of boat found not subject to local sales tax. Street v. Director of Revenue, No. 91371 (Mo.  banc, January 31, 2012), Breckenridge, J.

Taxpayer, a resident of Greene County, Missouri, purchased a boat, outboard motor and trailer from a dealer in Maryland. Greene County required payment of a local sales tax as a condition to issuance of a license for the boat. Greene County had not enacted a local use tax. The taxpayer paid the tax and filed a claim for refund which was denied by the director. The denial was affirmed by the administrative hearing commission.

Reversed. Since the purchase did not occur within Missouri, there is no statutory basis for the county to charge a local sales tax on the out-of-state purchase.