Brambles Industries, Inc. v. Director of Revenue, 80687

• Decision Date: 22 December 1998
• Docket Number: No. 80687,80687
• Citation: Brambles Industries, Inc. v. Director of Revenue, 981 S.W.2d 568 (Mo. 1998)
• Parties: BRAMBLES INDUSTRIES, INC., A/K/A CHEP USA, Appellant, v. DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

Page 568

981 S.W.2d 568

BRAMBLES INDUSTRIES, INC., A/K/A CHEP USA, Appellant, v. DIRECTOR OF REVENUE, Respondent.

No. 80687.

Supreme Court of Missouri En Banc.

Dec. 22, 1998.

James C. Owen, Katherine S. Walsh, Chesterfield, for appellant.

Jeremiah W. (Jay) Nixon, Atty., Gen., Evan J. Buchheim, Asst. Atty. Gen., Harry D. Williams, Department of Revenue, Jefferson, for respondent.

RONNIE L. WHITE, Judge.

Brambles Industries, Inc., doing business as Chep USA (Chep), leases pallets--portable platforms for storing or transporting freight--to Procter & Gamble (P & G) for use in shipping soap from P & G's St. Louis plant to its customers, generally retail stores. Pursuant to section 144.020(8), which imposes a sales tax on certain leases of personal property, Chep collected tax on these transactions from P & G and remitted it to the Director. Chep then filed for a refund of this tax, arguing that the lease proceeds were excludable from sales tax, since pallets purchased under identical circumstances would be excluded from sales tax as purchases for resale. The Director denied the refund application, and the AHC affirmed, holding that lease transactions are not eligible for a sale for resale exclusion because title is not transferred. Because we find that transfer of the right to use property may also qualify as a sale for resale, and that personal property leased under circumstances where a sale would be excludable qualifies for a parallel exclusion under section 144.010(3), we reverse.

Before the AHC, Chep presented testimony of one witness, P & G's purchasing manager for its St. Louis plant. He testified that P & G acquires pallets from several sources, including Chep, and that these pallets are functionally identical, although the Chep pallets are a distinctive color and marked with the Chep logo. While P & G purchases some pallets outright, it pays for the Chep pallets based upon the number of days they are in P & G's possession. At the P & G plant pallets are stacked with soap, shrink-wrapped into a "unit load" and shipped to retail stores without regard to whether they are rented or leased, and customers are charged the same amount whether rented or leased pallets are used to ship the merchandise. P & G does not receive either rented or leased pallets back from its customers. No evidence was presented as to whether P & G's customers were required to return pallets to Chep, and although the witness testified that the Chep pallets (and some of the purchased pallets) are "recycled" he did not make clear exactly what that entailed. The AHC found that Chep maintained ownership of and title to the pallets at all times, and that the transaction between P & G and Chep was a lease.

Chep argued that the pallets were transferred to P & G "for resale," and that this transaction was not taxable because section 144.010(8) excludes from taxation those sales that are "for resale." The AHC rejected this argument, holding that the sale for resale exception in section 144.010(8) is an exception to the definition of "sale at retail," which requires a sale, that is, a transfer of ownership. Since Chep did not transfer ownership, the AHC held, it is not entitled to the sale for resale exclusion.

On review, this Court is bound to uphold decisions of the AHC only to the degree that they are authorized by law, ¹ and interpretation of the law is a matter requiring the independent judgment of the reviewing Court. ² Here the AHC misinterpreted the law. While it is true, as the AHC concluded, that section 144.010(8) does not, in and of itself, provide an exclusion for the proceeds of a lease, it is nevertheless relevant in determining whether such an exclusion is available. Under section 144.010(3), "gross receipts" (the amount upon which the sales tax is determined) include, in addition to the proceeds from sales at retail,

the lease or rental consideration where the right to continuous possession or use of any article of tangible personal property is granted under a lease or contract and such transfer of possession would be taxable if outright sale were made and, in such cases, the same shall be taxable as if outright sale were made and considered as a sale of such article, and the tax shall be computed and paid by the lessee upon the rentals paid....

Thus, the proceeds of a lease are includable in gross receipts only to the degree that proceeds from a comparable sale would be includable.

To be included in gross receipts, sales proceeds must be derived from a "sale at retail," a category that generally includes only those sales made to the purchaser "for use or consumption and not for resale in any form as tangible personal property...." ³ The question of whether packing materials are resold rather than used or consumed by the packager was dealt with comprehensively by this Court in Sipco, Inc. v. Director of Revenue. ⁴ Under Sipco, packaging material is resold if there is "(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 a consideration paid or to be paid." ⁵ As described above, to the degree that a...