Opinion ID: 1683649
Heading Depth: 1
Heading Rank: 5

Heading: Does an exemption exist?

Text: Section 144.610 imposes a use tax on Coffee Companies' storage, use, or consumption within Missouri of any tangible personal property. The sale of property in the regular course of business, however, is expressly excluded from the definition of use and, therefore, from the use tax levy. Section 144.605(13). For purposes of the use tax, section 144.605(7) defines a sale as: any transfer, barter or exchange of the title or ownership of tangible personal property, or the right to use, store or consume the same, for a consideration paid or to be paid, and any transaction whether called leases, rentals, bailments, loans, conditional sales or otherwise, and notwithstanding that the title or possession of the property or both is retained for security. Tangible personal property held ... solely for resale in the regular course of business is expressly exempt from use tax. Section 144.615(6) (emphasis added). In determining whether there is a resale such that the resale exemption of section 144.615(6) applies, three elements must be met: (1) a transfer, barter, or exchange; (2) of the title or ownership of tangible personal property, or the right to use, store, or consume the same; (3) for consideration paid or to be paid. Aladdin's Castle, Inc. v. Dir. of Revenue, 916 S.W.2d 196, 198 (Mo. banc 1996). Coffee Companies' costs for the coffee equipment that they provided to loan agreement customers was considered when setting the prices those customers were charged for coffee and tea products. The more the equipment cost Coffee Companies, the more Coffee Companies charged customers using that equipment for coffee and tea. The elements required for a resale were met in Coffee Companies' loan agreement transactions in that the equipment was transferred to the customer, who had the right to use that equipment, for the consideration of (1) continued purchase of Coffee Companies' products and (2) payment of an increased cost of those products based on the cost of the equipment used. This Court has repeatedly held that where a business does not charge separately for goods transferred to customers but, rather, factors the cost of the goods into the price of all items sold to the customers, such goods are exempt from the use tax. Aladdin's Castle, 916 S.W.2d at 197 (prizes at arcade were exempt from use tax because were resold in that the cost of prizes was included in price charged for tokens); House of Lloyd v. Dir. of Revenue, 884 S.W.2d 271, 275 (Mo. banc 1994) (packing material was exempt from use tax where it was purchased solely for resale, despite fact that marketer received some incidental benefit from packing material); Sipco, Inc. v. Dir. of Revenue, 875 S.W.2d 539, 542 (Mo. banc 1994) (dry ice used to preserve pork in shipments to customers was exempt from use tax as it was resold in that the value of the dry ice was factored directly or indirectly into the total consideration paid for the pork); King v. Nat'l Super Mkts., Inc., 653 S.W.2d 220, 222 (Mo. banc 1983) (grocery store resold bags to its customers because cost of bags was factored in to cost of groceries), abrogated by Sipco, 875 S.W.2d at 542 ( King implied that the holder of goods must show a calculated cost specifically factored into the price for resale to claim the resale exemption, but Sipco held this specific calculation was no longer necessary). Previous cases have applied the resale exemption in the context of the loan or rental of an item to a customer, rather than an outright transfer of title or ownership. In Weather Guard, Inc. v. Director of Revenue, 746 S.W.2d 657 (Mo.App.1988), the court [9] relied on previous decisions of this Court in holding that an insulation wholesaler qualified for the resale exemption on its purchases of insulation installation machines that were used to promote the sale of its insulation to retailers. The wholesaler loaned the machines to retailers who purchased insulation so that they could sell the insulation to retail customers in a do-it-yourself program. Id. at 657. At all times, the machine remained the property of the wholesaler, but was on loan to the retailer for use by retail customers. Id. In accordance with an agreement entered between the wholesaler and retailer, the wholesaler would repair the machine at the retailer's expense, though the retailer was credited for repairs in the cost of insulation. Id. According to the agreement, the retailer would return the machine to the wholesaler upon request. Id. In exchange for this arrangement, the retailer agreed to purchase and use exclusively wholesaler's insulation. Id. at 658. The Weather Guard court determined that the wholesaler was entitled to the use tax resale exemption under section 144.615(6) because the definition of sale in section 144.605(5), [10] RSMo 1986, qualified a rental as a sale. Id. The court found that because the cost of the machines was factored in to the price for the insulation sold in the do-it-yourself program, the consideration element required for the resale exemption was met. Id. It noted that because the customers paid sales tax on the increased cost of the insulation, there was no loss of tax revenue to the State and to impose a use tax would amount to double taxation. Id. (citing Mgmt. Servs., Inc. v. Spradling, 547 S.W.2d 466, 468 (Mo. banc 1977) (primary purpose of section 144.610 is to supplement and protect the sales tax on out-of-state purchases)). This case is similar to Weather Guard . As with the insulation machines in Weather Guard , Coffee Companies' coffee equipment is loaned to customers, but remains Coffee Companies' property. Also, like in Weather Guard , there is no stated extra charge for customers' use of the equipment, but consideration is given insofar as the customers' cost for the products used with the equipment reflects the cost of the use of the equipment itself. Like the wholesaler in Weather Guard , Coffee Companies are entitled to the use tax resale exemption under section 144.615(6). Coffee Companies are also entitled to an exemption from sales tax on the purchases at issue because they are for resale. In Brambles Industries v. Director of Revenue, 981 S.W.2d 568 (Mo. banc 1998), this Court determined that a lessor of shipping pallets was entitled to a sales tax refund for taxes it had paid on leases of pallets. The lessor had remitted sales tax on the leases of the pallets under section 144.020.1(8). Brambles, 981 S.W.2d at 569. The lessor, however, sought a refund of the taxes, arguing that the lease proceeds were excludable from sales tax because if the pallets were sold outright under identical circumstances, they would be excluded from sales tax as purchases for resale. Id. This Court found that to the extent that a lease would be a sale for resale if an outright sale had been made, section 144.010(3), defining gross receipts, requires that the proceeds from such a lease be excluded from gross receipts and, therefore, not considered in determining sales tax. Id. at 570. In Brambles , this Court declared that the right to use element of resale was satisfied regardless of whether the customers were obligated to return the pallets, and the consideration element was satisfied by evidence that customers paid the same price regardless of whether they rented or purchased the pallets. Id. at 571. Similarly, in this case, the fact that Coffee Companies' customers are required to return the equipment if the loan agreement is terminated does not defeat the fact that customers give consideration for the right to use the equipment under the terms of the agreement. Like the lessor's transactions in Brambles , Coffee Companies' transactions meet the definition of resale and are, therefore, exempt from sales tax.