Associated Industries of Missouri v. Director of Revenue, No. 75089

• Decision Date: 29 June 1993
• Docket Number: No. 75089
• Citation: 857 S.W.2d 182
• Parties: ASSOCIATED INDUSTRIES OF MISSOURI, and Alumax Foils, Inc., Appellants, v. DIRECTOR OF REVENUE and Delong's Incorporated, et al., Respondents.
• Court: Missouri Supreme Court

Page 182

857 S.W.2d 182

ASSOCIATED INDUSTRIES OF MISSOURI, and Alumax Foils, Inc., Appellants, v. DIRECTOR OF REVENUE and Delong's Incorporated, et al., Respondents.

No. 75089.

Supreme Court of Missouri En Banc.

June 29, 1993.

Juan D. Keller, St. Louis, for appellants.

William L. Webster, Atty. Gen., Curtis F. Thompson, Asst. Atty. Gen., Alex Bartlett, Jefferson City, for respondents.

PRICE, Judge.

Appellants challenge the constitutionality of § 144.748, RSMo.Supp.1991. ¹ The statute imposes a flat 1.5 percent use tax for the privilege of storing, using or consuming tangible personal property in Missouri that was purchased outside the state. Appellants seek a declaration that the tax violates the commerce, due process, and equal protection clauses of the United States Constitution and the due process, equal protection and uniformity clauses of the Missouri Constitution and an injunction permanently enjoining enforcement of the statute. The trial court denied both declaratory and injunctive relief. We have exclusive appellate jurisdiction under article V, § 3 of the Missouri Constitution and affirm the decision of the trial court.

I

Appellant Associated Industries of Missouri ("AIM") is a not-for-profit corporation comprised of persons, firms, partnerships and corporations engaged in business or industry in Missouri. AIM's members pay Missouri sales and use taxes on purchases of tangible personal property purchased inside and outside of the state.

Appellant Alumax Foils, Inc., ("Alumax") is a Delaware corporation headquartered in St. Louis, Missouri. It is a member of AIM. Alumax manufactures and sells foil products inside and outside of Missouri. Some of its purchases in Missouri are subject to local sales taxes at rates less than 1.5 percent.

Respondent Raymond T. Wagner, Jr., was the duly appointed and qualified director of revenue, who in such capacity was charged with administering § 144.748.

Respondent intervenors include: Delong's, Inc., a steel fabricating company located in Jefferson City; the City of Blue Springs, a municipality located in Jackson County; Gary Markenson, a taxpayer residing in Jefferson City; the Missouri Association of Counties, a not-for-profit corporation representing the interests of 112 Missouri counties; the Missouri Municipal League, a benevolent corporation representing the interests of 540 municipalities; and, the Associated General Contractors of Missouri, a benevolent corporation whose members include contractors and others with similar business interests. They all allege that they will suffer harm should appellants prevail.

Respondent intervenors argue that appellants lack standing to challenge the constitutionality of § 144.748. The parties, however, have stipulated that appellants are subject to payment of the use tax under § 144.748 and that the Appellants pay sales taxes in geographical areas where the aggregate sales tax is less than the aggregate use tax. Accordingly, § 144.748 affects appellants' business interests as they choose between in-state and out-of-state purchase of goods, sometimes with differing sales and use tax burdens. This is sufficient to confer standing on appellants, Alumax and AIM. ²

II

Before considering the constitutionality of § 144.748, it is necessary to set forth the comprehensive sales and use tax scheme in Missouri. Generally, a sales tax is imposed upon the sale of an item of tangible personal property within the state. A use tax is a one-time tax attached to the use, consumption or storage of an item of tangible personal property, otherwise exempt from sales tax because it was purchased from a seller outside of the state. Use taxes are often referred to as "complementary" to sales taxes. In addition to raising revenue, use taxes attempt to equalize the competitive position of intrastate and interstate commerce by assuring that Missouri residents who purchase from either source bear equivalent tax burdens.

Section 144.020 imposes a statewide sales tax of 4.225 percent on the sales price of tangible personal property sold in Missouri. Section 144.610 imposes a statewide use tax of 4.225 percent on the sales price of tangible personal property sold outside of Missouri but stored, used, or consumed in Missouri.

Other provisions authorize, but do not require, county and municipal governments to impose various local sales taxes on the sale of tangible personal property sold within their jurisdiction. See, e.g., §§ 66.600 to 66.630, 67.500 to 67.545, 92.400 to 92.420, 94.500 to 94.510, 94.600 to 94.655, and 94.700 to 94.745. Prior to the enactment of § 144.748, these permissive sales tax statutes resulted in an aggregate sales tax rate higher than 4.225 percent in the vast majority of counties and municipalities in the state, while the use tax on similar transactions made outside the state remained at 4.225 percent.

In response, the General Assembly enacted § 144.748, also known as the "additional use tax". The statute imposes an additional flat use tax at the rate of 1.5 percent on the sales price of tangible personal property purchased outside the state. While the tax is imposed and collected by the state, it is distributed back to the counties in accordance with a formula provided in the statute.

As a result of the flat use tax rate, the aggregate use tax imposed upon all interstate transactions is now 5.725 percent of the sales price. The aggregate sales tax rate on an identical intrastate transaction, however, may be higher or lower than 5.725 percent, depending upon the rate that each county and municipal government has imposed under the permissive sales tax provisions.

Generally, most taxable sales are subject to a higher aggregate sales tax rate than the aggregate use tax rate. The following cities, however, are among those areas where the aggregate sales tax rate falls below 5.725 percent: Dexter in Stoddard County; Clifton Hill in Randolph County; New Cambria in Macon County; Napoleon in Lafayette County; Bixby and Glover, both in Iron County; Brandsville in Howell County; Stanberry in Gentry County; Kennett and Malden, both in Dunklin County; Winston in Daviess County; Gordonville in Cape Girardeau County; Monett in Barry County; and Farber in Audrain County. Consequently, consumers such as appellants who purchase, for example, a copy machine in Dexter, Missouri, pay less in sales taxes than they would have paid in use taxes had they purchased the copy machine outside the state. It is this disparity that appellants contest.

In the case at bar, the parties have stipulated to figures that reflect taxable sales made in Missouri in the calendar year of 1990. Respondents argue that based on these figures, had § 144.748 been enacted at that time, the use tax would have been less burdensome on interstate commerce than the complementary sales tax on intrastate sales when considered on a statewide basis. The record reveals that in 1990, the use tax would have imposed approximately $100,000,000 less in overall tax liability than would have been generated had the sales been made instate and subject to sales taxes. Based upon these stipulated facts, 93.14 percent of all taxable sales made in Missouri were subject to an aggregate sales tax rate of 5.725 percent or higher. Of those sales, 55.32 percent were subject to an aggregate sales tax rate in excess of 5.725 percent, with some aggregate sales tax rates as high as 7.5 percent. However, 6.86 percent of the taxable intrastate sales were subject to a sales tax rate less than 5.725 percent, which would have been the statewide aggregate use tax rate had § 144.748 been enacted. ³

Thus, the core issue before the Court is whether a state use tax may impose a greater burden than the various sales taxes in specific localities, if on a statewide basis the use tax imposes a lesser overall burden than do all the various sales taxes. We hold that it may where, as here, the state displayed no purpose to discriminate against interstate commerce and has substantially avoided doing so. ⁴

III

Article I, § 8, cl. 3, of the United States Constitution expressly authorizes Congress to "regulate Commerce with foreign Nations, and among the several States." Although the clause is an express grant of power, it also has been understood to imply a "negative sweep" that limits the states' power to interfere with interstate commerce. Quill Corp. v. North Dakota, 504 U.S. 298, ----, 112 S.Ct. 1904, 1911, 119 L.Ed.2d 91, 104 (1992). This 'negative' aspect of the commerce clause has long been held to prohibit states from discriminating against interstate commerce but does not necessarily require "identical treatment of all taxpayers engaged in such commerce." Tatarowicz and Mims-Velarde, An Analytical Approach to State Tax Discrimination Under the Commerce Clause, 39 Vand.L.Rev. 879, 925 (1986).

The United States Supreme Court has oscillated in its interpretation on the commerce clause over the years, particularly as that clause concerns limitations on state taxation powers. Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 420, 66 S.Ct. 1142, 1150, 90 L.Ed. 1342 (1946); see Quill, 504 U.S. at ----, 112 S.Ct. at 1911, 119 L.Ed.2d at 104. In the earliest decisions, the Supreme Court declared that "no State has the right to lay a tax on interstate commerce in any form." Leloup v. Port of Mobile, 127 U.S. 640, 648, 8 S.Ct. 1380, 1384, 32 L.Ed. 311 (1888); see also Brown v. Maryland, 12 Wheat 419, 6 L.Ed. 678 (1827). Later cases interpreted the commerce clause less stringently by distinguishing between direct and indirect burdens on interstate commerce. Direct burdens were prohibited while indirect burdens were generally permitted. Quill, --- U.S. ----, ----, 112 S.Ct. at 1911, 119 L.Ed.2d at 104 citing Sanford v. Poe, 69 F. 546 (6th Cir.1895), aff'd sub nom Adams Express Co. v. Ohio State Auditor, 165 U.S. 194, 220, 17 S.Ct. 305, 308, 41 L.Ed. 683 (1897). The wavering doctrinal lines of the Court...