Link to Mo. Sup. Ct. Opinion
Craig Street purchased a boat, outboard motor, and trailer in Maryland. Upon returning to Missouri, he registered the items with the Missouri Department of Revenue, at which time he paid local sales tax under protest. The Director of Revenue denied his refund request, and he appealed to the Administrative Hearing Commission (AHC). The AHC determined Street was not entitled to a refund. The Supreme Court of Missouri reversed this decision. The court reasoned that the purchase was not subject to local sales tax because such taxes may only be imposed to the same extent as the state sales tax, which only apply to in-state purchases. Further, although a local use tax could potentially be imposed on the purchase, the county in which Street resided had not adopted a local use tax.
I. Facts and Holding
After purchasing a boat, outboard motor, and trailer in Maryland, Craig Street returned to his home in Greene County, Missouri.[2] When Street registered these items with the Missouri Department of Revenue, he was required to pay local sales tax.[3] He paid the tax under protest and filed for a refund with the Director of Revenue. The Director of Revenue denied the request, and Street appealed to the AHC, which likewise determined Street was not entitled to a refund of the local sales tax.[4] In reaching this decision, the AHC first concluded that the Missouri General Assembly intended that in-state and out-of-state motor vehicle purchases be taxed alike.[5] It then concluded the local sales tax applied to the same extent as that of the Missouri Sales Tax Law, and that Street's purchase was subject to the state motor vehicle use tax law, which is within the Sales Tax Law.[6] Also, it reasoned that the legislature specifically exempted motor vehicle purchases from the Compensating Use Tax Law; therefore, a local use tax on motor vehicles could not be imposed.[7] The AHC also concluded that, under two statutory provisions, the purchase was deemed to have occurred in Greene County, permitting the imposition of the local sales tax.[8]
On appeal to the Supreme Court of Missouri, Street contended that the AHC erred in concluding that his out-of-state purchase occurred at his residence and that imposing a sales tax on his out-of-state purchase was inconsistent with the legislative intent that sales tax be imposed only on in-state purchases.[9] Much like the AHC, the court began by looking to the legislative intent.[10] The court looked to the state sales and use tax laws, recognizing that there were specific provisions relating to motor vehicles.[11] The court also looked to the statutes authorizing local sales and use taxes.[12] It noted that Greene County had adopted a local sales tax, but it had not adopted a local use tax.[13] Accordingly, the county could only impose on Street's purchase local sales tax "to the same extent and manner" as the state sales tax laws, pursuant to the statute authorizing local sales tax.[14] The court provided that the extent of those laws was clear from the language of the statutes: only sales within the state were taxable.[15] The court remarked that this interpretation was consistent with the court's prior reading of "nearly identical" statutes.[16] Therefore, it held the AHC's decision was "unauthorized by law and clearly contrary" to the legislature's reasonable expectations.[17]
The court then addressed the AHC's interpretations of the state tax statutes.[18] The court believed the first misstep by the AHC was its reading of the statute authorizing local use tax.[19] The AHC read the statute to authorize only local use tax on transactions subject to the Compensating Use Tax Law, of which the motor vehicle use tax was specifically excluded.[20] The court believed the true import of the language in the statute was to limit the rate of tax to be imposed, not the authority to impose tax.[21] Thus, so long as the locality submits the use tax proposal to a voter referendum, it could impose a local use tax on motor vehicles.[22] The court believed this error led the AHC to conclude the statute authorizing local sales tax permitted a sales tax on out-of-state purchases, which disregards the language limiting it to in-state purchases and "frustrate[s] the voter referendum requirement."[23] Further, the AHC's conclusion that two state statutes deemed the out-of-state purchase as occurring at the buyer's residence was incorrect because there are two possible interpretations of those statutes. [24] Accordingly, the statutes had to be construed in the taxpayer's favor.[25] Finally, the court summarily dismissed the argument that the motor vehicle tax was a special tax that was not subject to sales tax limitations.[26]
II. Legal Background
The Missouri Sales Tax Law spans from §§ 144.010 to 144.525 of the Revised Statutes of Missouri.[27] Section 144.020 provides that "[a] tax is hereby levied and imposed 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."[28] Section 144.021 also expressly states that the purpose of §§ 144.010 to 144.510 is to "impose a tax upon the privilege of engaging in the business, in this state[.]"[29] The plain language of these statutes limits the scope of the sales tax to in-state transactions, which the court correctly highlighted.[30] Besides the plain language, it is obvious that the tax under § 144.020 only applies to in-state purchases given the existence of a compensating use tax.[31] Further, although the plain language and complementary statutory scheme sufficiently indicate that sales tax is limited in scope to sales in Missouri, there are also constitutional issues surrounding the imposition and enforcement of a tax on nonresidents.[32]
A compensating use tax is used to impose a tax on the "exercise of incidents of ownership of property that was not subject to the sales tax at the time of its acquisition."[33] Section 144.610 imposes a tax on the privilege of storing, using, or consuming personal property. The purpose of the use tax is to "eliminate[] the incentive to purchase from out-of-state merchants in order to escape local sales taxes," which keeps in-state sellers competitive and supplements state revenues.[34] The Missouri tax law includes provisions specifically related to the sale and use of motor vehicles, trailers, boats, and outboard motors in §§ 144.070 and 144.440 that essentially reflect the obligations found in the sales and use tax statutes.
Besides state taxes, the Missouri statutes also permit local sales taxes under § 32.087. This statute provides that an ordinance or order imposing a local sales tax must do so "to the extent and in the manner provided in section 144.010 to 144.525." Similarly, § 144.757 permits a local use tax to be imposed "at the same rate as the local sales tax then currently in effect in the county or municipality upon all transactions which are subject to the taxes imposed pursuant to sections 144.600 to 144.745." A voter referendum is required before a local sales or use tax may be imposed.[35]
III. Comment
At first glance, it would seem as if the issue in this case is easily settled. The complementary nature of the sales and use tax statutes would appear to prohibit the AHC's outcome and endorse the Supreme Court of Missouri's outcome. This complementary scheme stands for the following proposition: If the sale occurs in Missouri, sales tax applies; if the sale occurs outside of Missouri, use tax applies. The statutes authorizing local sales and use taxes essentially reflect the state taxes. However, for a locality to impose such a tax, it must formally adopt it. Here, Greene County did not adopt a use tax; therefore, Street's out-of-state purchase is not subject to any local use tax, and he need only pay state use tax. The issue in this case was caused by the placement of the motor vehicle use tax law in § 144.440, which falls under the Sales Tax Law instead of the Compensating Use Tax Law.[36] The Compensating Use Tax Law specifically excludes motor vehicles from its reach, which are already covered by § 144.440.[37]
The court's interpretation of § 144.757, the statute authorizing local use tax, is questionable. First, the interpretation is a bit inconsistent with its interpretation of similar language in § 32.087, the statute authorizing local sales tax. The court utilized the language in § 32.087 that local sales taxes be imposed "to the extent and in the manner provided in section 144.010 to 144.525," to limit local sales tax to the scope of those laws, which the court determined was limited to in-state purchases only. However, the court interpreted the language in § 144.757.3, that "local use tax may be imposed at the same rate as the local sales tax then currently in effect in the county or municipality upon all transactions which are subject to the taxes imposed pursuant to sections 144.600 to 144.745," as a limitation on rates, not the scope. Interpreting the language as a limitation on rates does not make sense because the rates are already limited to the same rate as the local sales tax in the first subsection of the statute.[38]
At the very least, the statute is ambiguous, meaning the court's ultimate outcome is correct because all ambiguities must be construed in favor of the taxpayer.[39] However, if the county had enacted a local use tax, the taxpayer may have been found liable. The court's decision in this case has effectively cured poor drafting by the legislature. To express its likely true intent, the legislature should have recodified § 144.440 to fall within the Compensating Use Tax Law, instead of leaving it in the Sales Tax Law provisions, or it should have amended § 144.757.3 to provide that a local use tax may be imposed upon all transaction subject to taxes imposed pursuant to §§ 144.440 and 144.600 to 144.745.
-Emily M. Park
[1] No. SC91371 (Mo. Jan. 31, 2012) (en banc), available at http://www.courts.mo.gov/file.jsp?id=52257. The West reporter citation is Street v. Dir. of Revenue, 361 S.W.3d 355 (Mo. 2012) (en banc).
[2] Id. at 2.
[3] Id.
[4] Id.
[5] Id. In Missouri, there are specific tax provisions relating to the sale and use of motor vehicles, trailers, boats, and outboard motors. Mo. Rev. Stat. §§ 144.070 and 144.440 (2000). For the purposes of this summary, the phrase "motor vehicle" is used to refer to motor vehicles, trailers, boats, and outboard motors.
[6] Street, No. SC91371, slip op. at 3.
[7] Id. at 3, 10.
[8] Id. at 3.
[9] Id. at 4.
[10] Id.
[11] Id. at 5-6 (citing Mo. Rev. Stat. §§ 144.010 to 144.525 and 144.600 to 144.761 (2000)).
[12] Id. at 8 (citing §§ 32.087.5 and 144.757.3).
[13] Id. at 9.
[14] Id.
[15] Id.
[16] Id. at 9-10 (citing Binkley Coal Co. v. Smith, 179 S.W.2d 17 (Mo. 1944) (en banc)).
[17] Id. at 10.
[18] Id.
[19] Id. (citing Mo. Rev. Stat. § 144.757.3 (2000)).
[20] Id. at 10-11.
[21] Id. at 12.
[22] Id.
[23] Id. at 13.
[24] Id. at 13-14.
[25] Id.
[26] Id. at 14-15.
[27] Mo. Rev. Stat. § 144.010.3 (2000).
[28] § 144.020.1.
[29] § 144.021.
[30] Street, No. SC91371, slip op. at 9.
[31] §§ 144.600 to 144.745.
[32] Robert C. White, State Sales and Use Taxes – Variations, Exemptions, and the Aviation Industry, 45 J. Air L. & Com. 509, 516-17 (1980).
[33] Dir. of Revenue v. Superior Aircraft Leasing Co., Inc., 734 S.W.2d 504, 506 (Mo. 1987) (en banc) (internal quotations and citations omitted).
[34] Id. (internal quotations and citations omitted).
[35] For local sales tax, numerous provisions apply. See, e.g., §§ 66.600, 67.391, 67.505, 67.550, 67.581. For local use tax, see § 144.757.1.
[36] The Sales Tax Law includes §§ 144.010 to 144.525, and the Compensating Use Tax Law spans from §§ 144.600 to 144.745.
[37] § 144.615(4).
[38] § 144.757.1.
[39] President's Casino, Inc. v. Dir. of Revenue, 219 S.W.3d 235, 239 (Mo. 2007) (en banc).
