Title: Commercial Barge Line Co. v. Dir. of Revenue

State: missouri

Issuer: Missouri Supreme Court

Document:

SUPREME COURT OF MISSOURI 
en banc 
 
 
 
COMMERCIAL BARGE LINE COMPANY,  
) 
and AMERICAN COMMERCIAL BARGE 
 
) 
LINE, LLC, N/K/A AMERICAN COMMERCIAL 
) 
LINES, LLC, 
 
 
 
 
 
 
) 
 
 
 
 
 
 
 
 
) 
 
Appellants,  
 
 
 
 
) 
 
 
 
 
 
 
 
 
) 
v.  
 
 
 
 
 
 
 
) 
No. SC93448 
 
 
 
 
 
 
 
 
) 
DIRECTOR OF REVENUE, 
 
 
 
) 
 
 
 
 
 
 
 
 
) 
 
Respondent.  
 
 
 
 
) 
 
 
PETITION FOR REVIEW OF A DECISION OF THE ADMINISTRATIVE HEARING 
COMMISSION 
The Honorable Karen A. Winn, Commissioner 
 
Opinion issued April 29, 2014 
 
 
Commercial Barge Line (CBL) and American Commercial Barge Line (ACBL) 
(collectively referred to as Taxpayers) seek review of the Administrative Hearing 
Commission’s (AHC) determination that they owed Missouri sales and use tax on goods 
and supplies delivered to ACBL’s towboats while the towboats traveled south on the 
Mississippi River.  Taxpayers contend the assessments violated the Commerce Clause 
because they are not fairly related to any services Missouri provides Taxpayers.  They 
also claim that the taxes violate the Maritime Transportation Security Act, 33 U.S.C.  
§ 5(b) (2006), which prohibits non-federal entities from assessing taxes on vessels in 
navigable waters of the United States.  They further argue that the three-year statute of 
limitations in sections 144.220 and 144.7201 bars the Department of Revenue (DOR) 
from assessing any additional tax liability for the audit period, October 1, 2001, through 
December 31, 2006.    
 
This Court finds that the sales and use taxes were imposed on supplies purchased 
or used while in Missouri and did not violate the Commerce Clause as they were fairly 
related to the services the Taxpayers received from the state.2  Further, the taxes did not 
violate the Maritime Transportation Security Act because they were assessed on ACBL’s 
purchases and deliveries of supplies, not on the towboats themselves.  Last, because 
Taxpayers did not file any sales or use tax returns during the audit period, DOR was not 
barred from assessing tax liability for the audit period as section 144.220 provides no 
statute of limitations when the taxpayer does not file a return.  The AHC’s decision is 
affirmed.   
Factual Background 
CBL is a Delaware corporation and the single member of two limited liability 
companies: ACBL and Louisiana Dock Company.3  ACBL operates line-haul towboats 
that transport cargo along the Mississippi River from Minneapolis to New Orleans.  
                                                           
 
1 All references are to RSMo 2000. 
2 This Court has exclusive jurisdiction as this case involves the validity of a state statute and the 
construction of state revenue laws.  Mo. Const. art. V, sec. 3.   
3 Prior to 2005, Danielson Holding Company was the parent corporation of ACBL and Louisiana 
Dock.  After it reorganized in bankruptcy in January 2005, CBL became their parent company.  
CBL is also connected to several other entities that are not relevant to this case and, therefore, 
are not discussed.   
Louisiana Dock, in turn, provides various goods and services to ACBL, including selling 
and delivering supplies to ACBL’s towboats and storing supplies purchased from third-
party vendors until they are ready to be delivered. 
Neither CBL nor ACBL is registered to do business in Missouri and neither has 
offices or employees located in Missouri.  Louisiana Dock is registered to do business in 
Missouri and has both property and employees in St. Louis.  ACBL and Louisiana Dock 
are considered disregarded entities of CBL for both federal and Missouri tax purposes 
because they are limited liability companies and CBL is the only member of each 
company.4  However, Louisiana Dock registered in Missouri to pay sales and use tax 
under its own name, as opposed to using CBL’s name, to avoid confusion with vendors.  
Taxpayers did not file any sales or use tax returns in Missouri during the audit period.   
DOR audited CBL, ACBL, Louisiana Dock and other affiliated companies in 
2007.  At issue is Taxpayers’ tax liability in two types of transactions: (1) sales tax for 
ACBL’s purchase of food and other supplies from Louisiana Dock and (2) use tax for 
ACBL’s purchases from third-party vendors who either delivered the supplies directly to 
the ACBL towboats or used Louisiana Dock to deliver the supplies.  For each type of 
transaction, ACBL used the supplies exclusively on the towboats because the boats did 
not dock while in Missouri.     
                                                           
 
4 A disregarded entity is a term used in the federal treasury regulations.  It means that, for federal 
tax purposes, ACBL’s and Louisiana Dock’s federal taxable income is included in and reported 
by CBL.  See I.R.C. § 7701; Treas. Reg. § 301.7701-3.  Further, Missouri statutes provide that, 
for sales and use tax purposes, “a limited liability company and its members shall be classified 
and treated on a basis consistent with the limited liability company’s classification for federal 
income tax purposes.”  Section 347.187.2. 
3 
 
 
In the first category of transactions, Louisiana Dock purchased supplies from vendors 
to resell to ACBL.  Louisiana Dock did not pay sales tax on these supplies because it 
claimed the resale exemption.  When it resold the supplies to ACBL, ACBL also did not 
pay sales tax on the supplies.  Instead, ACBL claimed the “in-commerce” exemption, 
using a certificate that said, “Delivers [sic] were not made in the State of Missouri and 
the purchases were not used in the State of Missouri.”    
For the second category of transactions, ACBL purchased supplies from third-
party vendors located in Kentucky and Illinois.  In some instances, the third-party 
vendors shipped the supplies to Louisiana Dock, which stored them in its facility in St. 
Louis.  Louisiana Dock then delivered the supplies to ACBL’s towboats while they were 
on the Mississippi River.  ACBL paid Louisiana Dock a flat hourly rate for all of the 
services it provided, including making deliveries.  In other instances, the Illinois vendor 
delivered the supplies directly to ACBL’s towboats on the Mississippi River.  The vendor 
charged Illinois sales tax on all supplies it delivered to northbound boats, but not on 
deliveries to southbound boats.  ACBL did not pay any Missouri taxes on the supplies 
purchased from the third-party vendors.  Instead, it provided “exemption certificates,” 
which stated, “Title does not pass to ACBL until the supplies have been delivered to the 
towboat which is always outside the State of Missouri.”   
DOR’s audit determined that the certificates ACBL issued to Louisiana Dock and 
the third-party vendors were issued in bad faith and assessed sales and use taxes pursuant 
to sections 144.020 and 144.610.  For the supplies ACBL purchased from Louisiana 
Dock, DOR found the Taxpayers liable for $12,893.57 in sales tax and related interest 
4 
 
and penalties.  For the supplies purchased from third-party vendors, DOR found the 
Taxpayers liable for $107,775.09 in use tax and related interest and penalties.   
Taxpayers sought review of these assessments before the AHC.  The AHC 
concluded that the sales and use tax assessments did not violate the Commerce Clause 
because the supplies were either purchased or used within Missouri and the benefits 
Missouri provided to Taxpayers were fairly related to the taxes assessed.  It further 
concluded that because the sales and use taxes were assessed on tangible personal 
property either purchased or used in Missouri, and not on the privilege of using the river 
or on the towboats, they did not violate the Maritime Transportation Security Act.  
Lastly, it determined that DOR’s claims were not barred by the statute of limitations 
because Taxpayers failed to file sales and use tax returns during the audit period.   
The AHC determined the proper assessment was $53,610.33 in use tax on the 
third-party vendor transactions and $4,904.82 in sales tax on transactions with Louisiana 
Dock.  These amounts reflected the tax owed on approximately half of all of ACBL’s 
transactions to represent the times ACBL’s towboats traveled southbound on the 
Mississippi River in Missouri.5  It then upheld DOR’s assessment of interest and a five 
percent addition as a penalty.  Sections 144.170; 144.250; 144.665; 144.720.  Taxpayers 
appeal.   
                                                           
 
5 Neither party presented evidence regarding what proportion of the relevant transactions took 
place on the Missouri side of the Mississippi River.  In the absence of such evidence, the AHC 
approximated that the towboats spend 50 percent of their time traveling southbound and, 
therefore, in Missouri.  See Kansas City Power & Light Co. v. Dir. of Revenue, 83 S.W.3d 548, 
553 (Mo. banc 2002) (“where evidence is not sufficient to allow for a precise calculation of the 
amount of tax, then the [AHC] shall make as close an approximation as it can.” (internal 
quotation omitted)).  Neither party contests this approximation.   
5 
 
Jurisdiction and Standard of Review 
 
This Court has exclusive jurisdiction in all cases involving the validity of a state 
statute and the construction of state revenue laws.  Mo. Const. art. V, sec. 3.  The AHC’s 
decision will be affirmed if: (1) it is authorized by law; (2) it is supported by competent 
and substantial evidence on the whole record; (3) it does not violate mandatory 
procedural safeguards; and (4) it is not clearly contrary to the reasonable expectations of 
the General Assembly.  Section 621.193; see Loren Cook Co. v. Dir. of Revenue, 414 
S.W.3d 451, 453 (Mo. banc 2013).   This Court reviews the AHC’s interpretation of the 
law de novo.  Loren Cook Co., 414 S.W.3d at 453.   
Tax Assessments Did Not Violate the Commerce Clause 
Taxpayers first argue that they cannot be subjected to sales or use tax under the 
Commerce Clause, which gives Congress the power to “regulate Commerce . . . among 
the several States.”  U.S. Const. art I, § 8, cl. 3.  While the Commerce Clause prevents 
states from discriminating against interstate commerce, “it was not the purpose of the 
commerce clause to relieve those engaged in interstate commerce from their just share of 
state tax burden.”  Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977).  For a 
tax to survive a challenge under the Commerce Clause, it must satisfy the four criteria 
outlined in Complete Auto: the tax (1) is applied to an activity with a substantial nexus 
with the taxing state; (2) is fairly apportioned; (3) does not discriminate against interstate 
commerce; and (4) is fairly related to the services provided by the state.  Id.   
Here, Taxpayers do not contest that the sales and use taxes assessed against them 
meet the first three prongs of the Complete Auto test.  Rather, they suggest that the taxes 
6 
 
were not fairly related to the services Missouri provided because their boats did not 
receive any direct services from the state.  A tax will satisfy this prong so long as the 
“incidence of the tax as well as its measure . . . [are] tied to the earnings which the State   
. . . has made possible.”  Commonwealth Edison Co. v. Montana, 453 U.S. 609, 626 
(1981).  The relevant inquiry is not whether the taxpayers have received any “direct 
benefits” from the state, but “whether the state has given anything for which it can ask 
return.”  Id. at 622, 625.  To this point, a taxpayer can be expected to contribute to a state 
for benefits “derived from his enjoyment of the privileges of living in an organized 
society.”  Id. at 623.  Such privileges include “police and fire protection, the use of public 
roads and mass transit, and the other advantages of civilized society.”  Goldberg v. Sweet, 
488 U.S. 252, 267 (1989).   
 
Taxpayers contend that they did not receive any services from the state of 
Missouri because their boats operate exclusively on the waters of the Mississippi River 
and their only connection with the state of Missouri is through Louisiana Dock.  This 
argument, however, is anchored in neither law nor fact.   
The state boundary extends to the middle of the Mississippi River, and Missouri 
enjoys concurrent jurisdiction over the western half of the Mississippi River with the 
federal government.  See section 7.001; Streckfus Steamers, Inc. v. City of St. Louis, 472 
S.W.2d 660, 664 (Mo. App. 1971).  While Taxpayers’ boats are on the western half of the 
river, they are within the state of Missouri.  The supplies delivered to the towboats while 
they are on the western portion of the river are delivered in Missouri, whether they were 
delivered by Louisiana Dock or a third-party vendor.  As such, Taxpayers received the 
7 
 
benefit of Missouri roads and docks that facilitated the deliveries of the taxed supplies 
and from Missouri’s law enforcement and judicial systems while in this state.  They also 
enjoyed these benefits when they stored supplies in Louisiana Dock’s Missouri facility.  
Importantly, the Taxpayers received these benefits by virtue of their presence in this 
state, not simply because Louisiana Dock is located in Missouri. 
 
To support their argument, Taxpayers rely on American River Transportation Co. 
v. Bower, 813 N.E.2d 1090 (Ill. App. Ct. 2004).  ARTCO, similar to the instant case, 
involved the question of whether a state can assess use tax on supplies consumed on 
barges that plied the eastern portion of the Mississippi River in Illinois.  The ARTCO 
court found that because the supplies being taxed were purchased and loaded onto 
tugboats in Missouri, the Illinois use tax failed the fairly related test.  Here, however, the 
state in which the deliveries occurred seeks to assess tax liability.  The supplies were 
delivered while Taxpayers’ towboats were in Missouri, and the AHC upheld sales and 
use tax assessments on the supplies delivered in Missouri.  ARTCO does not support the 
position that Missouri cannot assess sales or use tax on the delivery of goods within its 
own borders.   
 
Although Taxpayers argue that they do not receive any direct benefits from 
Missouri, they reap the “advantages of a civilized society.”  Further, the AHC decision 
upheld sales and use tax assessments on deliveries that occurred in Missouri, so the taxes 
were tied to the earnings this “state made possible.”  The sales and use taxes assessed 
against Taxpayers were fairly related to the services Missouri provides and did not 
violate the Commerce Clause. 
8 
 
Tax Assessments Did Not Violate the Maritime Transportation Security Act 
 
The Taxpayers next argue that the Maritime Transportation Security Act, codified 
at 33 U.S.C. § 5(b), prohibits Missouri from imposing any sales or use taxes on the 
supplies delivered to the towboats.  That federal statute provides that “[n]o taxes . . . shall 
be levied upon or collected from any vessel or other water craft . . . by any non-Federal 
interest, if the vessel or water craft is operating on any navigable waters subject to the 
authority of the United States.”   
While the taxpayers argue that no taxes means no taxes, this argument fails to 
consider what the state is actually taxing.  Missouri is not taxing the barges, towboats, or 
their crews.  Rather, it is assessing sales and use tax on the goods and supplies delivered 
to the Taxpayers’ towboats while they are in Missouri.   
In this way, the instant case is similar to Reel Hooker Sportfishing, Inc. v. State 
Dep’t of Taxation, 236 P.3d 1230 (Haw. Ct. App. 2010), in which the state assessed a 
general excise tax against a charter fishing company that navigated the waters 
surrounding various Hawaiian islands.  Although the taxpayers argued that this violated 
the Maritime Transportation Security Act, the court found that the general excise tax was 
assessed on the “privilege of doing business in Hawaii” and not on the boats themselves.   
In Missouri, section 144.020 states that a sales tax is levied “for the privilege of 
engaging in the business of selling tangible personal property . . . in this state.”  Likewise, 
section 144.610 imposes a use tax “for the privilege of storing, using or consuming 
within this state any article of tangible personal property.”  Just as the tax in Reel Hooker 
Sportfishing was assessed for the privilege of doing business in Hawaii, Missouri sales 
9 
 
and use taxes are assessed for the privilege of carrying on various activities within this 
state.  Here, the sales and use taxes were assessed against Taxpayers for buying or using 
supplies within Missouri, not against their vessels.  As such, the sales and use taxes 
assessed against Taxpayers do not violate 33 U.S.C. § 5(b).       
Taxes Were Not Assessed Outside of the Statute of Limitations 
The taxpayers finally argue that the statute of limitations barred DOR from 
assessing these taxes.  Section 144.220 provides two limitation periods for assessing 
additional tax liability.  Under the first provision, if a taxpayer neglects or refuses to file a 
sales tax return or files a fraudulent return, there is no time limit as to when DOR can 
assess tax liability.6  Section 144.220.1.   In all other cases, DOR has three years after the 
return was filed or required to be filed to assess additional sales tax liability.  Section 
144.220.3.  Section 144.720 sets the same limitation period with respect to use tax 
assessments.   
The Taxpayers point out that Louisiana Dock filed timely sales and use tax returns 
for the audit period.  They argue that since Louisiana Dock and ACBL are disregarded 
entities for Missouri tax purposes under section 347.187.2, Louisiana Dock’s tax returns 
satisfied CBL’s obligation to file tax returns for ACBL.  Their argument continues that 
DOR only had three years to assess additional tax liability, and any liability assessed after 
that three years is barred by the relevant statute of limitations. 
                                                           
 
6 The failure to file a return, in certain situations, can constitute a neglect to file “where the 
taxpayer did not otherwise disclose its operations to the [DOR] and could not rely on previous 
decisions and policy of the [DOR] as an excuse for nondisclosure.”  Hewitt Well Drilling & 
Pump Serv., Inc. v. Dir. of Revenue, 847 S.W.2d 795, 798 (Mo. banc 1993).   
10 
 
11 
 
  While it is true that Louisiana Dock filed tax returns for the audit period, those 
returns did not accurately reflect the transactions of CBL, its parent company, or ACBL, 
its affiliate, because both Louisiana Dock and ACBL provided inaccurate exemption 
certificates to vendors.  Further, neither CBL nor ACBL filed sales or use tax returns in 
Missouri, and their tax liability does not stem from Louisiana Dock’s activities within 
Missouri, but rather from ACBL’s purchase and use of supplies while in Missouri.  
Because the Taxpayers did not file any tax returns or disclose their activities to DOR in 
any other manner, the first statute of limitation provision of section 144.220 – that there 
is no time limitation with respect to when DOR can assess tax liability – attaches.  See 
Hewitt Well Drilling & Pump Serv., Inc. v. Dir. of Revenue, 847 S.W.2d 795, 798 (Mo. 
banc 1993).  DOR was not barred from assessing taxes against Taxpayers.   
Conclusion 
For the foregoing reasons, the AHC’s decision is affirmed. 
 
_________________________ 
Mary R. Russell, Chief Justice 
 
All concur.