Title: Fenix Constr. Co. of St. Louis v. Dir. of Revenue

State: missouri

Issuer: Missouri Supreme Court

Document:

SUPREME COURT OF MISSOURI 
en banc 
 
 
FENIX CONSTRUCTION COMPANY of 
) 
ST. LOUIS and FIVE STAR READY-  
) 
MIX CONCRETE COMPANY and 
 
) 
HORSTMEYER ENTERPRISES, INC.,  
) 
 
 
 
 
 
 
 
) 
 
 
 
Appellants,  
 
) 
 
 
 
 
 
 
 
) 
vs. 
 
 
 
 
 
 
) 
No. SC93915 
 
 
 
 
 
 
 
) 
DIRECTOR of REVENUE, 
 
 
) 
 
 
 
 
 
 
 
) 
 
 
 
Respondent.  
 
) 
 
 
PETITION FOR REVIEW OF A DECISION OF 
THE ADMINISTRATIVE HEARING COMMISSION 
The Honorable Sreenivasa Rao Dandamudi, Commissioner 
 
Opinion issued November 25, 2014 
 
Fenix Construction Company of St. Louis, Five Star Ready-Mix Concrete 
Company and Horstmeyer Enterprises, Inc., (collectively, Taxpayers) sought 
refunds for sales and use taxes paid on materials used to construct tilt-up concrete 
walls.  Taxpayers asserted that the materials fell within the section 144.054.21 tax 
exemption for materials used in “manufacturing … any product.”   The director 
denied the refund claims.  The Administrative Hearing Commission (AHC) 
                                                 
1 All statutory citations are to RSMo Supp. 2009. 
 
determined that the tax exemption was inapplicable because the tilt-up concrete 
walls were not a “product” as that term is used in section 144.054.2.2  The AHC’s 
decision is affirmed.  
I. Facts 
 
Fenix is a construction contractor that performs concrete construction 
services, including the construction of “tilt-up” concrete wall panels.  Tilt-up work 
involves casting concrete and reinforced steel wall panels on the ground and then 
tilting the wall panels into position as walls of the building.  Tilt-up wall panels 
are made at the construction site because it is cost-prohibitive to construct them 
off-site and transport them to the construction site.  According to Fenix, each 
panel is custom made for the specific job in accordance with the detailed 
specifications of the customer.     
 
In 2011 and 2012, Taxpayers filed sales tax refund claims for their 
purchases of materials used in the tilt-up process.  The director of revenue denied 
those claims.  The AHC also denied the refund claims.  Taxpayers filed a petition 
for review.  
II. Standard of Review 
 
The AHC’s decision will be affirmed if: (1) it is authorized by law; (2) it is 
supported by competent and substantial evidence based on the whole record;  
                                                 
2 Taxpayers filed separate refund claims with the director of revenue.  Each claim was 
denied.  The AHC consolidated the claims.   This Court has jurisdiction because 
resolution of this appeal requires construction of the revenue laws of the state of 
Missouri.  Mo. Const. art. V, sec. 3.    
 
 (3) mandatory procedural safeguards are not violated; and (4) it is not clearly 
contrary to the reasonable expectations of the legislature.  Section 621.193.   This 
Court reviews the AHC’s interpretation of section 144.054.2 de novo.  Aquila 
Foreign Qualifications Corp. v. Dir. of Revenue, 362 S.W.3d 1, 3 (Mo. banc 
2012).  Tax exemptions are strictly construed against the taxpayer.  Id.   The 
taxpayer bears the burden of proving clearly and unequivocally that the exemption 
applies.  Id.  Any doubt regarding the applicability of an exemption is resolved in 
favor of taxation.  Id. 
III. Analysis 
 
Section 144.054.2 provides sales and use tax exemptions for “materials 
used or consumed in the manufacturing, processing, compounding, mining, or 
producing of any product ....”  Thus, Taxpayers must demonstrate, clearly and 
unequivocally, that the tilt-up concrete wall panels are a manufactured product.  
 
The legislature has not defined the word “product” as it is used in chapter 
144.3  “Absent a statutory definition, the primary rule of statutory interpretation is 
to give effect to legislative intent as reflected in the plain language of the statute.”   
                                                 
3 The other issue that was presented in this case to the AHC was whether constructing tilt-
up walls constitutes “manufacturing, processing, or producing” for purposes of Section 
144.054.2.  Section 144.054.2 contains no language pertaining to construction.  Rather, 
the plain and ordinary language of section144.054.2 shows intent to exempt materials 
used in the manufacturing process in an industrial setting, as opposed to construction 
sites.  Had the legislature intended to exempt construction activities, it could have 
included terminology referencing construction activities as it has done in other statutes 
included in chapter 144.  Because the AHC chose not to address this issue, and this Court 
affirms the determination that a tilt-up wall is not a “product” within the meaning of 
section 144.054.2, it is not necessary to resolve that issue in this case. 
 
Brinker Missouri, Inc. v. Dir. of Revenue, 319 S.W.3d 433, 437-38 (Mo. banc 
2010).  When interpreting a statutory tax exemption, the interpretation must 
adhere to the requirement of strict construction.  Balloons Over the Rainbow, Inc. 
v. Dir. of Revenue, 427 S.W.3d 815, 825 (Mo. banc 2014). 
 
Although chapter 144 does not define the term “product,” this Court has, 
for nearly 20 years, held that the term “product” means “an output with a market 
value.”  Mid-America Dairymen, Inc. v. Dir. of Revenue, 924 S.W.2d 280, 283 
(Mo. banc 1996); see also Int’l Bus. Machines Corp. v. Dir. of Revenue, 958 
S.W.2d 554, 557 (Mo. banc 1997), E& B Granite, Inc. v. Dir. of Revenue, 331 
S.W.3d 314, 316 (Mo. banc 2011).  To prove that a particular good or service 
constitutes a “product,” the taxpayer does not have to actually market the product, 
but “it is incumbent on the taxpayer to prove the existence of a market, whether or 
not the product is actually marketed by the taxpayer.”  Mid-America Dairymen, 
924 S.W.2d at 283.   
 
A “market” is “a sphere within which price-making forces operate and in 
which exchanges in title tend to be followed by actual movement of goods.”  
WEBSTERS’S THIRD NEW INTERNATIONAL DICTIONARY 1383 (1966).  A strict 
construction of the term “product” as used in section 144.054.2 indicates that the 
fundamental quality defining a product as an “output with a market value” is that 
the price of the alleged product is set primarily by competing buyers and sellers.  
The fact that the price of a product is set primarily by competing buyers and 
sellers necessarily implies that a good or service qualifies as a product only if it 
can be marketed to various buyers.  
 
The record in this particular case demonstrates that Taxpayers have not 
proven the existence of a market for their tilt-up concrete walls.  At the AHC 
hearing, Fenix’s founder testified as follows: 
 
Q:     Now, given that each wall panel is designed for a 
particular building, you can’t sell that wall panel to any other 
person could you? 
 
 
A:     No. 
 
 
Q:     And there is no market of people going – somebody 
doesn’t drive to your site and look at [the] left corner of that 
building and say that’s amazing.  I’ll offer you double what the 
contractor is paying you for that panel? 
 
 
A: That’s never happened. 
 
 
Q: And it is really unlikely to happen, isn’t it, because that 
panel is designed for that particular building isn’t it? 
 
 
A: Yes.  
 
 
The foregoing testimony demonstrates that Fenix’s construction of tilt-up 
concrete wall panels for particular buildings does not yield a marketable product 
for purposes of section 144.054.2.  The walls are constructed on site, can be used 
only for that particular building, and have not demonstrated actual or potential 
market value to any buyer other than the building owner.  The tilt-up wall panels 
are not a product pursuant to section 144.054.2.4  
                                                 
4 Taxpayers assert that the fact that Fenix can sell its tilt-up walls demonstrates the 
existence of a market.  The fact that Fenix can sell its walls may demonstrate a market for 
 
It was “incumbent on [Taxpayers] to prove the existence of a market” for 
its tilt-up wall panels, and Taxpayers did not do so.  See Mid-America Dairymen, 
924 S.W.2d at 283.  The AHC determined correctly that Taxpayers did not 
establish that Fenix’s tilt-up concrete wall panels are a “product” for purposes of 
section 144.054.2.5  
 
The AHC’s decision denying the refund claim is affirmed. 
 
 
 
 
 
 
 
_________________________________  
 
 
 
 
 
 
RICHARD B. TEITELMAN, Judge 
 
All concur. 
                                                                                                                                                 
Fenix’s construction services. The refund claim is, however, premised on the assertion 
that tilt-up walls are a marketable “product.”  As noted, Taxpayers have not demonstrated 
a market for the walls themselves, each of which is designed for a particular part of a 
particular building and has no demonstrated use beyond the specific construction project 
for which the wall was constructed.  
 
5 This result is not inconsistent with E& B Granite.  331 S.W.3d 314 (Mo. banc 2011).  In 
E& B Granite, the issue was whether granite countertops were “products” so that the 
taxpayer was exempt from sales and use taxes on its purchase of granite slabs used to 
make the countertops.  Id. at 315.  The director conceded that the countertops were 
“output[s] with a market value” and, instead, argued that the installed countertops were 
not products because they were not tangible personal property.  Id. at 316.  E.B. Granite 
did not analyze whether the countertops were “outputs with a market value.”