Title: City of Kansas City, Missouri Aviation Department, Respondent vs. Director of Revenue, Appellant.
Citation: N/A
Docket Number: SC90714
State: Missouri
Issuer: Missouri Supreme Court
Date: June 29, 2010

SUPREME COURT OF MISSOURI 
en banc 
 
 
 
CITY OF KANSAS CITY, MISSOURI  
) 
AVIATION DEPARTMENT, 
 
 
) 
 
 
 
 
 
 
 
) 
 
Respondent,  
 
 
 
) 
 
 
 
 
 
 
 
) 
v. 
 
 
 
 
 
 
) 
No. SC90714 
 
 
 
 
 
 
 
) 
DIRECTOR OF REVENUE, 
 
 
) 
 
 
 
 
 
 
 
) 
 
Appellant. 
 
 
 
 
) 
 
 
PETITION FOR REVIEW OF A DECISION OF  
THE ADMINISTRATIVE HEARING COMMISSION 
 
Opinion issued June 29, 2010 
 
 
Kansas City buys electricity from a local utility and sells it to tenants and 
subtenants at the city-owned Charles B. Wheeler Downtown Airport.  After years of 
paying sales taxes to the state, the city in 2007 stopped paying the taxes because the city 
contended that it was not in the business of rendering a taxable service at retail under 
section 144.020, RSMo 2000.1   
                                             
 
1 All statutory references are to RSMo 2000 unless otherwise indicated. 
1 
The director of revenue issued assessments against the city for the unpaid taxes.  
The city appealed the assessments to the administrative hearing commission, which 
upheld the city's position. 
On this appeal, the Court holds that, in selling electricity to its tenants and 
subtenants, Kansas City is engaged in the business of rendering a service at retail that is 
subject to tax.  The commission's decision is reversed, and judgment is entered for the 
director.   
Facts and Procedural History 
 
Kansas City owns and, through its aviation department, manages the Charles B. 
Wheeler Downtown Airport pursuant to its charter.  It leases facilities at the airport to a 
variety of tenants, at least some of whom sublease some of their leased space.   
 
Two substations serve the airport with electricity.  One substation, located on 
Richards Road, is owned partially by Kansas City and the distribution line from that 
substation is fully owned by Kansas City.  Kansas City Power & Light ("KCP&L") 
provides Kansas City with electricity at the substation and bills the city about six cents 
per kilowatt hour for the electricity as it enters the substation.  The Richards Road 
substation provides all of the electricity for the tenants and subtenants located on the west 
side of the airport.  Each building on the west side of the airport has a separate electrical 
meter, which Kansas City owns and maintains.  City employees read the meters and 
record the readings at each location on a monthly basis.  Kansas City then bills each 
tenant and subtenant about nine cents per kilowatt hour.  The rate charged to the tenant or 
subtenant is designed to recover some of the city's expenses for providing electricity. 
2 
 
The facilities on the east side of the airport receive their electricity from a 
distribution line extending from the Broadway Bridge substation.  Both the substation 
and this distribution line are owned by KCP&L.  Facilities on the east side of the airport 
are billed in three different ways.  The tenant and subtenants located in hangar Nos. 2 and 
3 are metered through individual meters and billed by Kansas City in the same way as 
tenants on the west side of the airport.  A second group of tenants, located in the terminal 
building, are not metered individually by the city because of logistical difficulties in 
providing individual meters within the building.  Instead, the city estimates electricity 
usage and embeds the estimated cost of electricity in the tenants' rent.  Finally, a third 
group of facilities, located north of the terminal building, receive their electricity directly 
from KCP&L, which is responsible for metering, billing and collecting sales tax.  In this 
case, only the electricity usage by the tenants and subtenants who are metered and billed 
by the city is at issue.2   
 
Prior to August 2007, Kansas City reported the amounts collected from its metered  
tenants for their electrical usage as taxable.  In August 2007, however, the city stopped 
paying sales tax returns for the electrical usage of its metered tenants.  This led to the 
director of revenue assessing sales taxes to Kansas City for the months of August, 
September and October 2007, which were estimated based on the city's previous returns.3  
 
 
                                             
 
2 Specifically, the electricity of the tenants on the west side of the airport and the tenant 
and subtenants located in hangar Nos. 2 and 3 is at issue. 
3 The sales tax assessed for the airport was $1,457.03 for August, $1,353 for September 
and $1,277.50 for October 2007, a total of $4,088.31.  Under agreement with the director 
3 
 
Kansas City appealed the director's sales tax assessments to the administrative 
hearing commission.  The commission found that Kansas City is not subject to sales tax 
on its provision of electricity to its lessees because the city is not engaged in the business 
of rendering a taxable service at retail under section 144.020.  The commission's decision 
was based on a finding that Kansas City was not "in the business" of selling electricity.  
Rather, the commission stated that "[t]he city provides a public service with its airport" 
pursuant to the city's charter "and the provision of electricity is a necessary incident to 
that service."  The commission further reasoned that the city was not "provid[ing] 
electricity to its tenants with a profit motive in mind."   
 
Kansas City also argued that the tax was prohibited by article III, section 39(10) of 
the Missouri Constitution, which prohibits sales tax on a city's purchases.  The 
commission found that it was the city's "sales" of electricity that were at issue, not the 
city's purchases, but said that, regardless, the city was not required to pay sales tax.   
The director sought review of the commission's decision that the city's provision 
of electricity to its tenants was not subject to sales tax.  The court of appeals found that 
the decision of this case required "construction" of the revenue laws, which is under this 
Court's exclusive jurisdiction pursuant to article V, section 3 of the Missouri 
Constitution, and transferred the case to this Court pursuant to article V, section 11 of the 
Missouri Constitution.   
 
                                                                                                                                                 
 
of revenue, the city has filed "zero" returns for any reporting period subsequent to 
October 2007 pending the outcome of this case.   
4 
Analysis 
 
This Court reviews the commission's interpretation of revenue laws de novo.  Six 
Flags Theme Parks, Inc. v. Dir. of Revenue, 102 S.W.3d 526, 527 (Mo. banc 2003).  The 
commission's factual determinations are upheld if they are supported by the law and they 
are supported by substantial evidence in the record.  Id.  
 
Section 144.020.1 levies and imposes a tax "upon all sellers for the privilege of 
engaging in the business of selling tangible personal property or rendering taxable service 
at retail" in the state of Missouri.  A "seller" is defined as a "person selling or furnishing 
tangible personal property or rendering services, on the receipts from which a tax is 
imposed pursuant to section 144.020." 4  Section 144.010.1(11).  A "'[s]ale at retail' 
means any transfer made by any person engaged in business, [including] [s]ales of 
electricity [and] electrical current ...."  Section 144.010.1(10)(b).  The issue before this 
Court, therefore, is whether Kansas City is engaged in the business of selling electricity 
to its airport tenants.   
Section 144.010.1(2) defines "business" as "any activity engaged in by any person, 
or caused to be engaged in by him, with the object of gain, benefit or advantage, either 
direct or indirect ...."  This Court has previously noted that "[t]his language is very broad, 
and is surely designed to make transactions [that] might not otherwise be covered 
taxable."  St. Louis Country Club v. Admin. Hearing Comm'n of Missouri, 657 S.W.2d 
614, 617 (Mo. banc 1983).  To demonstrate a person is engaged in business, the director 
                                             
 
4 The statutory definition of a "person" includes a municipal corporation such as Kansas 
City.  Section 144.010.1(6). 
5 
is not required "to show that the taxpayer has a purpose of maximizing revenue, or of 
deriving income ...."  Id.   
In St. Louis Country Club, the Court found that private country clubs were 
engaged in the business of providing the clubs' facilities for members' guests for a fee.  
Id.  The Court reasoned that club members undoubtedly considered "the opportunity to 
entertain guests to be important for social or business reasons."  Id. at 617-18.  Therefore, 
because club members received a benefit from guests being able to come to the clubs, the 
clubs also received a benefit since the clubs "exist only for the benefit of their members."  
Id. at 617.  This benefit was sufficient for the Court to find "at least an indirect benefit or 
advantage from guest fees" such that the country club was engaged in business, even 
though the clubs were not-for profit corporations and their budgets regularly showed a 
deficit at the end of the year.  Id. at 615, 618.   
Relying on its decision in St. Louis Country Club, this Court has also held that the 
fees charged by a city to operate its recreational program, as mandated by the city's 
charter, are taxable.  City of Springfield v. Dir. of Revenue, 659 S.W.2d 782, 783, 785 
(Mo. banc 1983).  The Court noted that these fees, including admission fees, participation 
fees and sales of concessions, "seldom exceed[ed] and often [did] not meet the direct 
costs of the program," and that the city often had to subsidize most of the programs 
through property taxes.  Id. at 783.  The Court also noted that the funds to pay for the 
activities and the sales taxes to be imposed "are appropriated and come from public funds 
of the [c]ity."  Id.  Nevertheless, the Court found that the city of Springfield was engaged 
in a business, and the fees were taxable.  Id. at 785.   
6 
In both St. Louis Country Club and City of Springfield the fees received were not 
sufficient to cover the expenses of either the country clubs or the recreational activities of 
the city.  Similarly here, the nine cents per kilowatt hour apparently is not enough to 
cover Kansas City's expenses in providing electricity to its tenants.  However, as 
suggested by this Court in St. Louis Country Club and City of Springfield, nothing in the 
definition of "business" suggests that an entity engaging in business must recover a profit 
or even break even.   
To be engaged in a business, the city only needs to receive an indirect gain, benefit 
or advantage.  Section 144.010.1(2).  In this case, the commission's decision specifically 
noted that "[t]he City provides a public service with its airport, and the provision of 
electricity is a necessary incident to that service.  The use of the electricity is for the 
purpose of furthering the City's governmental interest in leasing the airport facilities."  
(Emphasis added).  Further, Kansas City admits that it had other options it could have 
pursued in ensuring its tenants received electricity, but it would have been economically 
imprudent for the city to do so.  Like in St. Louis Country Club where this Court found 
that club members' interest in being able to entertain guests at the club was an indirect 
benefit to the club so that guest fees were taxable, here Kansas City's interest in leasing 
its airport facilities is furthered by providing electricity to its tenants and subtenants, and 
the city is receiving an indirect benefit.   
It is immaterial that Kansas City's provision of electricity is simply something the 
city does as part of its charter-mandated ownership and management of an airport.  In 
City of Springfield, Springfield was required to provide recreational services pursuant to 
7 
its charter.  Providing concessions and charging admission fees and performance fees 
were a necessary incident to the city's provision of recreational services that the city 
chose to provide.  Nevertheless, this Court held those fees to be taxable.  City of 
Springfield, 659 S.W.2d at 785.  Here, Kansas City chooses to buy electricity from 
KCP&L for six cents per hour and then provide the same electricity to its tenants and 
subtenants for nine cents per kilowatt hour.5  Like Springfield, Kansas City is engaging 
in business under section 144.010.1(2).   
Kansas City also argues that the director's tax on electricity is prohibited by article 
III, section 39(10) of the Missouri Constitution.  Article III, section 39(10) provides that 
"[t]he general assembly shall not have power ... [t]o impose a use or sales tax upon the 
use, purchase or acquisition of property paid for out of the funds of any county or other 
political subdivision."  The commission properly found that the director is making no 
attempt to tax the city's purchases of electricity here.  Instead, the director is taxing the 
city's "sales" of electricity to its tenants, who are the ones using, purchasing and acquiring 
the electricity.  See City of Springfield, 659 S.W.2d at 784 ("It is clear that there is no 
constitutional prohibition to the sales tax here imposed.  The sales tax is nothing more 
than a tax on gross receipts from the selling of goods or providing services at retail.  It is 
                                             
 
5 The city argues that, unlike the voluntary purchasers of the goods and services in City of 
Springfield, here each tenant's need for power is joined inextricably to the use and 
enjoyment of the tenant's leasehold.  However, as stated above, the plain language of the 
statutory definition of "business" makes clear that the test is whether the taxpayer 
receives a gain, benefit or advantage by providing the good or service.  No analysis is 
required of whether the good or service is needed for full use of another good or service.  
Further, just as the purchasers of participation fees in City of Springfield had to pay these 
fees to participate in the relevant activity, the tenants here have to pay for electricity to 
enjoy their leaseholds fully.   
8 
evident that there is no tax on the use, purchase or acquisition of property paid for from 
City funds.").   
Conclusion 
 
Kansas City is engaging in the business of selling electricity to its tenants and 
subtenants.  The city, therefore, is required to pay sales tax on these sales under section 
144.020.  The decision of the administrative hearing commission is reversed, and 
judgment is entered in favor of the director.  Rule 84.14. 
 
 
 
 
 
 
 
 
________________________________ 
 
 
 
 
 
 
Michael A. Wolff, Judge 
 
All concur.  
9