Opinion ID: 2167319
Heading Depth: 1
Heading Rank: 3

Heading: the resale exclusion is inapplicable

Text: The State of Missouri imposes a tax upon all sellers for the privilege of engaging in the business of selling tangible personal property ... at retail in this state. § 144.020. Out-of-state purchases are subject to a compensating use tax under section 144.610 for the privilege of storing, using or consuming within this state any article of tangible personal property. Missouri only seeks to impose a single tax on such transactions. For this reason, Missouri statutes provide for an exemption from the imposition of a sales or use tax on goods that are held solely for sale at retail. See §§ 144.010.1(10), 144.615(6). This resale exemption avoids multiple taxation of the same property as it passes through the chain of commerce from producer to wholesaler to distributor to retailer. Sipco, Inc. v. Director of Revenue, 875 S.W.2d 539, 541 (Mo. banc 1994). To be entitled to the resale exemption, the taxpayer must resell the item purchased or incorporate its value into other items it resold. President Casino, Inc., 219 S.W.3d at 237. The underlying reason for the resale exemption in the Missouri tax code is avoiding double taxation, for: In situations in which a business provides goods to its customers free of charge and factors the cost of the goods into the price of other items subject to sales tax, then to impose sales tax or use tax liability on the purchase of those goods would amount to double taxation and would not serve the express purpose of the sales tax or use tax. Id. at 243-44 (citations omitted). The question is whether ICC qualifies for the resale tax exemption because its sales to the municipalities are not subject to tax. This Court's reasoning in Westwood Country Club v. Director of Revenue, 6 S.W.3d 885 (Mo. banc 1999), is dispositive here. In that case, Westwood Country Club claimed an exemption from sales tax on its purchases of food and beverages that it would later serve its members, arguing that it was entitled to a resale exemption, even though its later sale of the food and beverages to its members was not taxable pursuant to Greenbriar Hills Country Club v. Director of Revenue, 935 S.W.2d 36 (Mo. banc 1996). This Court disagreed, relying on Greenbriar . In that case, Greenbriar Country Club paid tax on its purchases of food and beverages. This Court was required to determine the taxability of Greenbriar's sale of food and beverages to its members and their guests. This Court held that, because the club sold the food and beverages only to its members and their guests, and did not serve the general public, its sales did not constitute a sale at retail under sections 144.010.1(10)(e) and 144.020.1(6) [3] and so were not subject to sales tax. In Westwood , the country club paid neither sales or use tax on its purchases of food or beverages nor sales or use tax on the sales of food or beverages to its members. It argued that this was proper because it bought the food and beverages so it could resell it to its members and their guests; therefore, it bought it for resale, even if that resale was itself not taxable under Greenbriar . This Court disagreed, stating: [T]he purpose of Missouri's sales tax system is to tax property once and not at various stages in the stream of commerce. Westwood, 6 S.W.3d at 888. But, it noted, Westwood wanted to invoke the principle of avoiding double taxation to avoid being taxed even once. Id. This Court found that such an application of Missouri's resale exemption was inconsistent with the purpose of the statute. That is, because Westwood club patrons, under Greenbriar , were free from tax on the food and beverages the club served them, that service did not qualify as a sale at retail to the patrons; so, the club was required to pay taxes on the food and beverages, thereby allowing the goods to be taxed once. This rationale is directly applicable here. ICC's supply of the food and other consumables to the inmates will not be taxed due to application of the governmental sales exemption. [4] As in Westwood , this disqualifies ICC from claiming the resale exemption, because the rationale for that exemption  the avoidance of double taxation  does not apply. Indeed, if ICC were correct in its argument that its purchases of consumables are not subject to tax because they will be served to inmates, but that its sales are not subject to tax because of the governmental tax exemption, then no tax would be imposed on the purchase, use or sale of these consumables at all. The purpose of the exemption is not to provide a special benefit to ICC that is not enjoyed by other taxpayers. As in Westwood , the taxpayer must pay a tax on its purchase of consumables where, as here, its resale of the consumables is not taxable. This interpretation of the tax and exemption statutes is borne out by the definition of seller in Missouri's tax statutes. 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. § 144.010.1(11) (emphasis added). To be a seller as that term is used in Missouri's taxing statutes, therefore, a tax must be imposed on the receipts from sale of personal property or services. All parties concede that no tax is imposed pursuant to Missouri Constitution art. III, sec. 39(10) or section 144.030.1 on the property or services that ICC provides to the municipalities with which it contracts. ICC, therefore, does not meet the definition of a seller. The exemption for goods held for resale is contained in section 144.010.1(10), which defines sale at retail. Put simply, there must be a `sale at retail' in order for the `resale' exclusion of that section to apply. Westwood, 6 S.W.3d at 888. McDonnell Douglas Corp. v. Director of Revenue, 945 S.W.2d 437 (Mo. banc 1997), is not to the contrary. As this Court noted in Westwood , McDonnell Douglas' (MDC's) sale was exempted from tax under an exemption applicable to sales and purchases involving the United States government, which stated: There is hereby specifically exempted from ... the computation of the tax levied, assessed or payable ... any retail sale which the State of Missouri is prohibited from taxing pursuant to the Constitution or laws of the United States of America. ... § 144.030.1. That exemption applied in McDonnell Douglas because applicable government regulations in McDonnell Douglas provided that title to property purchased by a contractor, such as MDC, vested in the government immediately. These unusual title-vesting provisions of the contract made the property purchased by MDC the property of the United States government  before the property was used or consumed. Id. at 440. Taxes could not be charged to the government. Therefore, MDC did not owe any tax. Id. McDonnell Douglas does not assist ICC here.