Sellers to Government and Exempt Entities Must Pay Sales Tax on Purchases
The Missouri Supreme Court issued a ruling in ICC Management, Inc. v. Director of Revenue, 290 S.W.3d 699 (Mo. banc 2009), that impacts sellers’ use of the resale exclusion, which applies to all affected transactions occurring after September 1, 2009, the date the decision became final.
Taxpayer provided nontaxable services to counties and municipalities in Missouri, and claimed that tangible personal property it purchased to perform those services was resold to the local governments, which are excluded from the sales tax, and was therefore not subject to tax. The Court held that the sale to the local governments was not a sale at retail because it was not subject to tax, and consequently, ICC could not claim the sale for resale exclusion and must pay tax on its purchases.
The Court relied primarily on two cases: Greenbriar Hills Country Club v. Director of Revenue, 935 S.W.2d 36 (Mo. banc 1996), and Westwood Country Club v. Director of Revenue, 6 S.W3d 885 (Mo. banc 1999). In Greenbriar Hills, the Court held that a private country club that only sold meals to its members and guests did not have to collect and remit tax on the sales of those meals because the statute only imposed tax on places “in which rooms, meals or drinks are regularly sold to the public.”Meals sold only to members and guests were excluded from the taxing statute. In Westwood, another private country club claimed it did not have to pay tax on its purchases of food used to sell meals to its members and guests because they were sales for resale. The Court held that because the sales of meals were excluded from tax, they did not constitute sales at retail. Because the sale for resale exclusion is contained in the definition of sale at retail, a transaction that is not a sale at retail cannot be a sale for resale. As the Court noted, Westwood invoked the principle of avoiding double taxation “to avoid being taxed even once.” 6 S.W.3d at 888.
The ICC court expressly adopted the Westwood rationale: “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. 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.”
Missouri Tax Collection
If you owe the IRS, you often owe the Missouri Department of Revenue (“DOR”) also. The DOR does not have extensive staff to pursue collection of unpaid tax. The typical DOR process is to send out a number of notices, then if not resolved, refer collection to private collection agencies (e.g., NCO Financial or GC Services) or the count prosecutor. Additionally, DOR does not have extensive procedures such as the IRS “reasonable living expense standards” to determine the appropriate monthly installment payment amount, and generally does not recognize inability to make payments. DOR’s “typical” installment payment arrangement is payment in full over 12 or at most 24 months.While there is some possibility of a longer term payment plan, it is difficult to obtain.
The private collection agencies act as they do when collecting for commercial creditors. The prosecutors seem to have other preferred priorities, but will pursue tax collection matters. The prosecutors generally seem amenable to payment arrangements, and may be more flexible with the terms than the DOR. If you have some tax periods placed with the prosecutor and others periods still in the DOR inventory, you have to arrange two separate installment payment plans.
Missouri has statutory provision for offers in compromise (“OIC”), but there appear to be no standard process and DOR responds inconsistently to OICs currently.
Spouses Income Tax Returns are “combined”, not “joint”
When you file a “married-joint” federal income tax return, both spouses are liable for 100% of the liability shown on the return, and for any additional liability assessed, such as on audit. The IRS can collect the entire liability for either spouse, even if the tax is a result of income or matters that one spouse did not know about when initially filing the return (e.g., unreported income assessed on later audit). Even after divorce, the IRS can collect the entire unpaid balance from either spouse, even if the judge in the divorce orders one spouse to pay the entire liability. The IRS was not a party to the divorce and is not bound by the divorce decree.
Spouses are required to file a “combined” Missouri income tax return if they file a federal joint return. However, unlike federal joint returns for husband and wife, a Missouri combined return by a husband and wife does NOT impose “joint and several” liability pursuant to R.S.Mo. §143.491. For a combined return, each spouse is only liable for their own tax on their separate income, as adjusted for their determined portions of itemized deductions or the standard deduction, and exemptions, etc.
For this purpose, “separate” income means the income from each spouse’s earned income (e.g., wages), income from the spouse’s separately owned property (e.g., stock), and their portion of the income on jointly owned property, such as dividends on jointly owned stock, which is divided between them and each spouses’ portion listed separately for each spouse.
Request to separate Missouri tax liability
A spouse can request innocent spouse relief from IRS joint liability, or if not liable for the other spouses tax debt (e.g., from a separatemarried return, or a return from prior to their marriage), they can request injured spouse relief, e.g., to obtain their portion of a tax refund on a new joint return filed with the spouse who owes tax.
Innocent spouse relief is not needed in Missouri. However, while the Missouri form on which spouses file a combined return calculates each spouse’s tax liability separately, it combines the liability, takes credit for withholding, etc., and records a single liability for both spouses. The Department of Revenue (“DOR”) computer system apparently does not separately track each spouse’s liability. When calling the DOR, the employee may incorrectly refer to the liability as “joint”, and state or infer that both spouses are liable for the total amount due. Regardless, each spouse is only liable for the tax on their separate income. You must submit a written request to have the liability separated as the Department of Revenue will not separate the liability based on a telephone request.
Requirement to File Amended Missouri Return after Change in Federal Return
R.S.Mo. §_143.601 requires taxpayers who amend their federal returns or whose returns are audited to file an amended Missouri return within 90 days after the adjustments or audit has been completed or accepted.
Sellers to Government and Exempt Entities Must Pay Sales Tax on Purchases