All Star Amusement, Inc. v. Director of Revenue

• Decision Date: 26 April 1994
• Docket Number: No. 076539,076539
• Citation: 873 S.W.2d 843
• Parties: ALL STAR AMUSEMENT, INC., Appellant, v. DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

Page 843

873 S.W.2d 843

ALL STAR AMUSEMENT, INC., Appellant, v. DIRECTOR OF REVENUE, Respondent.

No. 076539.

Supreme Court of Missouri En Banc.

April 26, 1994.

Thomas E. Carew, Kansas City, for appellant.

Jeremiah W. (Jay) Nixon, Atty. Gen., Gretchen Garrison, Asst. Atty. Gen., Jefferson City, for respondent.

COVINGTON, Chief Justice.

All Star Amusement, Inc., appellant, sells cigarettes, food, and beverages in the Kansas City metropolitan area. The Director of Revenue audited All Star and assessed sales and use tax, interest, and additions. All Star appealed the assessment to the Administrative Hearing Commission (AHC). At the hearing, All Star presented several signed exemption certificates that were undated or dated after alleged exempt sales had occurred. The AHC held, as a matter of law, that All Star had not received the exemption certificates in good faith; therefore, it was not shielded from sales tax liability under § 32.200, art. V, § 2, RSMo 1986. The Missouri Court of Appeals, Western District, transferred the case because this Court has exclusive appellate jurisdiction in cases involving construction of Missouri's revenue laws. Mo. Const. art. V, §§ 3 and 11. Reversed and remanded.

The facts recited are those relevant to the issue that invokes this Court's original appellate jurisdiction. All Star Amusement, Inc., was incorporated in Missouri in 1981. It does business as Kansas City Automated Food Service in the Kansas City metropolitan area. All Star owns and derives receipts from coin-operated cigarette, snack, and soda vending machines. All Star purchased goods suitable for vending in large quantities at favorable prices. It sold some of the goods at retail in its vending machines and sold the remainder at retail and wholesale directly to various buyers. All Star filed no sales tax returns until June 1987.

The Director of Revenue conducted a sales and use tax audit for the period January 1, 1985, through December 31, 1989. The director commenced the audit in August 1987, but discontinued it because of inadequate records and insufficient cooperation. The director recommenced the audit in November 1989, and concluded it in November 1990. As a consequence of inadequate record keeping, the director approximated gross receipts based upon available evidence. The director assessed sales and use tax, interest, and additions. All Star appealed the director's tax assessment to the AHC.

At the administrative hearing, All Star produced signed exemption certificates and exemption letters from several of its purchasers. Some of the exemption certificates were not dated and some were dated after alleged exempt sales had occurred. The AHC held, as a matter of law, that the phrase "good faith" in § 32.200, art. V, § 2, requires sellers to receive exemption certificates contemporaneously with the sale, and that exemption certificates be dated. Accordingly, the AHC refused to find exempt any sales made to buyers that had given undated exemption certificates. For the dated exemption certificates, the AHC found exempt only those sales that occurred in the month a certificate was dated and those that occurred thereafter.

On appeal from the AHC, All Star raises three points, the second of which is dispositive for purposes of this Court's original appellate jurisdiction: the AHC misinterprets the good faith requirement of § 32.200.

The dispositive issue is a question of law, not fact. In Gammaitoni v. Director of Revenue, 786 S.W.2d 126 (Mo. banc 1990), and Conagra Poultry Co. v. Director of Revenue, 862 S.W.2d 915 (Mo. banc 1993), this Court addressed the good faith requirement of § 32.200. In both cases we affirmed the AHC's holding that the appellant's sales were not exempt. This Court then addressed the issue of whether the appellants were nonetheless shielded from sales tax liability under § 32.200 by reason of having received exemption certificates in good faith. In both, we upheld the AHC's factual finding that the appellants had not accepted the exemption certificates in good faith because the findings were supported by substantial evidence upon the record as a whole. Unlike the factual determinations under review in Gammaitoni and Conagra, the Commission's conclusion of law is at issue here. This Court will exercise its independent judgment in correcting errors of law. Sneary v. Director of Revenue, 865 S.W.2d 342, 344 (Mo. banc 1993).

Under Missouri's sales tax statute, sellers must collect and remit sales tax on all sales of tangible personal property unless the transaction or purchaser is exempt. §§ 144.020, 144.030, 144.080, RSMo 1986 & RSMo Supp.1993. Section 32.200, art. V, § 2, RSMo 1986, part of the Multistate Tax Compact adopted by Missouri, offers sellers a safe harbor that provides absolute relief from sales tax liability irrespective of whether the underlying transaction qualified for an exemption. It states:

Whenever a vendor receives and accepts in good faith from a purchaser a resale or other exemption certificate or other written evidence of exemption authorized by the appropriate state or subdivision taxing authority, the vendor shall be relieved of liability for a sales or use tax with respect to the transaction.

Id. (emphasis added). ¹

In Conagra, this Court stated that the phrase "good faith" is generally understood to "convey the sense of '[h]onesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry.' " Conagra, 862 S.W.2d at 918 (citing Black's Law Dictionary 193 (6th ed. 1990)). Consistent with the definition set forth in Conagra, good faith receipt of an exemption certificate requires that a seller honestly believe that the buyer is exempt from paying the sales tax. Good faith belief may rest solely upon the representations made by the buyer in the exemption certificate, ² as such reliance fulfills the function of exemption certificates. See Conagra, 862 S.W.2d at 918 ("Exemption certificates, received and accepted in good faith, protect sellers, who may know little or nothing about the facts upon which an exemption is claimed, from the obligation to investigate all buyers who may claim exemption because of their status or because of the intended use for purchases."). If a seller possesses information or has knowledge that should raise doubts regarding the buyer's claimed exemption, however, or suspects the genuineness of an exemption certificate, the seller must investigate to the point that it is honestly convinced that the buyer or the transaction is exempt.

Under the reasoning of Conagra, and contrary to the holding of the AHC, there is no absolute requirement, as a matter of law, that a seller receive an exemption certificate contemporaneously with a sale or that the certificate be dated so as to fulfill the good faith component of § 32.200. ³ A seller may, in certain circumstances, receive an exemption certificate in the good faith belief that the buyer is exempt from the sales tax where the certificate is not received contemporaneously with the sale or where the certificate is not dated. A post-transaction exemption certificate or one that is not dated may, however, influence a factual finding on the issue of a seller's good faith.

The decision is reversed and the case is remanded to the AHC for factual determinations on whether All Star accepted the exemption certificates in good faith. Even if the AHC finds that All Star accepted some of the disputed exemption certificates in good faith, All Star must still demonstrate which sales were made to the exempt companies. All Star may find this burden difficult as a consequence of its inadequate record keeping, which required the director to approximate gross receipts.

The issue that vested jurisdiction in this Court having been resolved, appellant's remaining points on appeal may properly be presented to the court of appeals after the commission makes its factual determinations on remand.

The decision is reversed and the cause remanded.

HOLSTEIN, THOMAS, PRICE, LIMBAUGH and ROBERTSON, JJ., concur.

JOSEPH M. ELLIS, Special Judge, concurs in part and dissents in part in separate opinion filed.

BENTON, J., not sitting.

JOSEPH M. ELLIS, Special Judge, concurring in part and dissenting in part.

I concur with the majority that the AHC erred, as a matter of law, in holding that an exemption certificate is void unless it is dated and received contemporaneously with the sale. However, I must respectfully dissent insofar as the opinion gives § 32.200, RSMo 1986, the Multistate Tax Compact as adopted in Missouri, the effect of substantive tax law.

In Goldberg v. State Tax Comm'n, 639 S.W.2d 796, 799 (Mo. banc 1982), this Court declared:

The Compact was never intended by anyone to be a substantive taxation statute.... It was conceived as merely a procedural vehicle by which the states could resolve conflicts among themselves and aggrieved taxpayers concerning the proper scope of taxation authority that affected states could exercise with regard to a taxpayer subject to taxation in more than one state.

The Court then went on to say:

The purpose clauses of Article I and the arbitration provisions of Article IX confirm this interpretation.... The drafters of the Compact and those states that adopted it never intended for it to have a substantive effect on taxation. That was not its purpose.

Id. at 800.

The foregoing language was subsequently approved by this Court in Brown Group, Inc. v. Administrative Hearing Comm'n, 649 S.W.2d 874, 880 (Mo. banc 1983), and King v. Procter & Gamble Distrib. Co., 671 S.W.2d 784, 785 (Mo. banc 1984). In 1990, this Court again confirmed the continued vitality of its holding in Goldberg. In Williams Companies v. Director of Revenue, 799 S.W.2d 602, 606 (Mo. banc 1990), cert. denied, 501 U.S. 1260, 111 S.Ct. 2916, 115 L.Ed.2d 1079 (1991), the Court held that "the Compact was not intended to authorize an alternative tax base" from...