Missouri Revised Statutes Section 144.054.2 allows tax exemptions for certain industry processes. The following cases involve the construction of this revenue statute in the contexts of building and road construction.
Ben Hur Steel Worx, LLC. v. Director of Revenue
Opinion handed down January 13, 2015
Ben Hur Steel Worx, LLC (“Ben Hur”) is a subcontractor that petitioned for sales and use tax refunds under Missouri Revised Statutes Section 144.054.2.[1] The company sought almost $200,000 in tax exemptions for various months over a three-year span, beginning in 2008.[2] Both the Director of Revenue (“Director”) and the Administrative Hearing Commission denied its request.[3] Upon review by the Supreme Court of Missouri, the court held that Ben Hur purchased its materials for the purpose of fulfilling its contractual obligations and not for the purpose of conducting large-scale industrial operations for which Section 144.054.2 was written.[4]
I. Facts & Holding
Ben Hur is a limited liability corporation that purchased steal beams and components to fulfill its contract for large-scale commercial buildings.[5] Ben Hur petitioned the Director for sales and use tax refunds under Section 144.054.2.[6] The company sought almost $200,000 in tax exemptions for materials purchased to construct, repair, or remodel certain non-tax-exempt entities.[7] The Director denied the request, and Ben Hur filed an appeal to the Administrative Hearing Commission (“AHC”).[8] The AHC affirmed the denial of tax exemption under Section 144.054.2, finding that Ben Hur properly claimed exemptions when it purchased steel materials for projects involving tax-exempt entities, but that it may not claim such tax breaks when the project is to be completed for a non-tax-exempt entity.[9] Ben Hur subsequently filed a petition to the Supreme Court of Missouri and the decision of the AHC was affirmed.[10]
II. Legal Background
The Supreme Court of Missouri stated its stance on tax exemptions for construction companies inBlevins Asphalt Construction Co. v. Dir. of Revenue.[11] Blevins Asphalt argued that once it purchased its manufactured materials, such as asphalt, those materials became tangible personal property.[12] Blevins Asphalt then sold the materials subject to tax exemption under Section 144.030.[13] The Supreme Court of Missouri upheld the AHC’s denial of tax exemption because if the “materials purchased by a contractor for use in meeting contractual obligations” are used by the contractor for that purpose, the contractor does not actually resell those materials to the ultimate consumer of the goods.[14]
The plain and ordinary meaning of Section 144.054.2 was explored by the Supreme Court of Missouri in Union Elec. Co. v. Dir. of Revenue.[15] The court again held that the plain and ordinary language of the statute only applied to industrial-type activities.[16] Union Electric attempted to seek tax exemption under Section 144.054.2 for electricity they sold to Schnucks grocery stores.[17] The electricity was used by Schnucks in its bakery departments for operation of machinery used to create a variety of baked goods.[18] The court held that Schuncks was not involved in “processing” as an industrial-type activity and thus Union Electric did not qualify for tax exemption under Section 144.054.2.[19]
III. Instant Decision
The Supreme Court of Missouri’s review of the AHC decision in this case is de novo.[20] Tax exemptions are strictly construed in Missouri against the taxpayer who must show by “clear and unequivocal proof” that an exemption is proper.[21] The relevant language in Section 144.054.2 creates a sales tax for “materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product.”[22] The Supreme Court of Missouri interprets statutes in a way that is reasonable and logical in light of the plain language included in the statute.[23]
For Ben Hur to claim exemption, it must prove under Section 144.054.2 that it consumed or used materials; during the manufacturing, processing, compounding, or producing; of a product.[24] A cursory look at Ben Hur’s activities may seem to lean towards exemption, but Section 144.054.2 is intended to apply to large-scale industrial activities, and Ben Hur is simply a construction company.[25] The word “construction” is not found within Section 144.054.[26]
As a construction enterprise, Ben Hur utilized the tax exemptions available for such companies under Section 144.062.[27] Under that section Ben Hur did not pay taxes on steel components it purchased for use on projects for entities with tax-exempt status like educational institutions or healthcare organizations.[28] The Supreme Court of Missouri holds that if Section 144.052 was meant to apply to construction companies purchasing materials, it would have used the similar language found in Section 144.062.[29]
Because Ben Hur is a construction subcontractor using components to fulfill construction contracts, Ben Hur is not subject to tax exemption under Section 144.054.2.[30] Under the plain and ordinary meaning of the statute, Ben Hur fails to meet the requisite criteria and does not qualify for a sales and use tax exemption.[31]
IV. Comment
The Supreme Court of Missouri protects the interests of the State in its decision in Ben Hur. The construction company attempted to creatively evade paying taxes on projects for its non-tax-exempt clients. Allowing Ben Hur to claim exempt status under Section 144.054.2 would have opened exemption status to many other types of business for which the statute was not intended.
- Travis Braun
Fred Weber, Inc., v. Director of Revenue
Opinion handed down January 13, 2015
Fred Weber, Inc. (“Weber”) is a rock quarry operator and asphalt manufacturer incorporated in Missouri.[32] Weber petitioned the Director of Revenue (“Director”) for a sales tax refund under Missouri Revised Statutes Section 144.054.2. The Director denied the refund and after appeal, the Administrative Hearing Commission (“AHC”) reversed, allowing a refund because the paving companies used the asphalt for “processing” purposes.[33] The Supreme Court of Missouri reversed the AHC decision on grounds that Section 144.054.2 only applies to industrial-type activity and the paving operations in this case did not meet those criteria.[34]
I. Facts & Holding
Weber’s business is selling rock base and asphalt to paving companies for use in road construction and resurfacing.[35] Once the asphalt is delivered to the paving company work sites, the companies use a paving machine to distribute asphalt evenly across the surface of the rock base.[36]
The petition for exemption involved sales from October 2008 to September 2009 totaling $2.6 million.[37] Under Section 144.054.2, Weber sought $139,654.62 in sales tax refunds related to those sales.[38]
The Director denied Weber’s requested refund under Section 144.054.2.[39] Weber’s appeal to the AHC was granted and the AHC reversed the Director’s decision in favor of Weber because it found that the paving companies were engaged in “manufacturing, “processing,” “compounding,” or “producing” of a product which entitled Weber to a refund for the sales taxes it paid on those materials.[40] The Supreme Court of Missouri heard the case on petition from the Director, and the court found against Weber and reversed the AHC decision.[41]
II. Legal Background
The plain and ordinary meaning of Section 144.054.2 was explored by the Supreme Court of Missouri in Union Elec. Co., v. Dir. of Revenue.[42] The court again held that the plain and ordinary language of the statute only applied to industrial-type activities.[43] Union Electric attempted to seek tax exemption under Section 144.054.2 for electricity they sold to Schnucks grocery stores.[44] The electricity was used by Schnucks in its bakery departments for operation of machinery used to create a variety of baked goods.[45] The court held that Schuncks was not involved in “processing” as an industrial-type activity and thus Union Electric did not qualify for tax exemption under Section 144.054.2.[46]
The Supreme Court of Missouri stated its stance on tax exemptions for construction companies inBlevins Asphalt Construction Co. v. Dir. of Revenue.[47] Blevins Asphalt argued that once it purchased its manufactured materials, such as asphalt, those materials became tangible personal property, which Blevins Asphalt then sold, subject to tax exemption under Section 144.030. The Supreme Court of Missouri upheld the AHC’s denial of tax exemption because the “materials purchased by a contractor for use in meeting contractual obligations” are used by the contractor for that purpose; the contractor does not actually resell those materials to the ultimate consumer of the goods.[48]
III. Instant Decision
The Supreme Court of Missouri reviewed the AHC decision de novo.[49] Tax exemptions are strictly construed in Missouri against the taxpayer who must show by “clear and unequivocal proof” that an exemption is proper.[50] The relevant language in Section 144.054.2 creates a sales tax for “materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product.”[51] The Supreme Court of Missouri interprets statutes in a way that is reasonable and logical in light of the plain language included in the statute.[52] A taxpayer seeking such an exception must prove under Section 144.054.2 that it (1) consumed or used materials (2) during the manufacturing, processing, compounding, or producing (3) of a product.[53]
The Supreme Court of Missouri held that the AHC erred in determining that paving companies were “processing” the asphalt and rock that Weber sold to them.[54] Using the doctrine of noscitur a sociis - a word is known by the company it keeps - the court determined that the word “processing” must have an industrial connotation for it to qualify for exemption.[55]
The court determined that Section 144.054.2 is intended to apply to materials used in large-scale industrial activities.[56] The paving companies to which Weber sold materials are engaged in construction and not large-scale industrial activities.[57] The word “construction” is not found within Section 144.054.[58] If Section 144.052 was meant to apply to materials sold to construction companies, the statute would have used the similar language found in Section 144.062.[59]
Because the paving companies Weber sold rock and asphalt to were not engaged in industrial-type activities, Weber did not qualify for exemption under Section 144.054.2.
IV. Comment
The Supreme Court of Missouri’s decision in Weber is consistent with both public policy and the economic realities of taxes and tax exemptions. Denying exemption in Weber keeps the scope of exemptions narrow to prevent the exemptions from being applied too broadly.
- Travis Braun
[1] Ben Hur Steel Worx, LLC v. Dir. of Revenue, 452 S.W.3d 624, 625 (Mo. 2015) (en banc).
[2] Id.
[3] Id.
[4] Id. at 628.
[5] Id. at 625.
[6] Id.
[7] Id. at 627.
[8] Id. at 625.
[9] See Id.at 627.
[10] Id. at 625.
[11] 938 S.W.2d 899 (Mo. 1997) (en banc).
[12] Id. at 901.
[13] Id. Although Blevins interpreted a different statute, it still looked to whether the purchase was for fulfilling contractual obligations as opposed to some other, tax-exempt purpose. Id.
[14] Id.
[15] 425 S.W.3d 118.
[16] Id. at 124.
[17] Id. at 120.
[18] Id.
[19] Id. at 125
[20] Ben Hur Steel Worx, at 626.
[21] Id.
[22] Id.
[23] Id.
[24] Id. at 627.
[25] Id.
[26] Id.
[27] Id.
[28] Id.
[29] Id.
[30] Id. at 628.
[31] Id.
[32] Fred Weber, Inc. v. Dir. of Revenue, 452 S.W.3d 628, 629 (Mo. 2015) (en banc).
[33] Id.
[34] Id. at 632.
[35] Id.
[36] Id.
[37] Id.
[38] Id.
[39] Id.
[40] Id.
[41] Id.
[42] 425 S.W.3d 118.
[43] Id. at 124.
[44] Id. at 120.
[45] Id.
[46] Id. at 125
[47] 938 S.W.2d 899 (Mo. 1997) (en banc).
[48] Id.
[49] Fred Weber, at 630.
[50] Id.
[51] Id.
[52] Id.
[53] Id.
[54] Id. at 631.
[55] Id.
[56] Id. at 7.
[57] Id.
[58] Id.
[59] Id.
