Carfax, Inc. v. Dir. of Revenue, SC99367

CourtUnited States State Supreme Court of Missouri
Writing for the CourtPAUL C. WILSON, CHIEF JUSTICE.
PartiesCARFAX, INC., Respondent, v. DIRECTOR OF REVENUE, Appellant.
Docket NumberSC99367
Decision Date13 September 2022

CARFAX, INC., Respondent,


No. SC99367

Supreme Court of Missouri, En Banc

September 13, 2022



The Director of Revenue seeks review of the Administrative Hearing Commission's ("AHC's") decision that the purchases by Carfax, Inc. ("Carfax"), of certain equipment (the "Disputed Equipment") used to create Vehicle History Reports ("VHRs") were exempt from sales and use taxes under sections 144.030.2(5)[1] and 144.054.2 because Carfax used such equipment to "manufacture" VHRs. This Court holds that Carfax does not use the Disputed Equipment to manufacture VHRs for


purposes of these statutes. Accordingly, the AHC's decision is vacated, and the cause is remanded for further proceedings consistent with this opinion.


Carfax is in the business of selling VHRs to consumers and car dealers. A VHR is a report generated for a specific vehicle providing information about that vehicle's history, such as ownership and title history, mileage information, accident history, previous maintenance and repairs, and manufacturer recall notices. A VHR also may include Carfax's own insights, including how much previous owners drove the vehicle compared with the industry average, explanations of confusing title information, whether a vehicle was located in an area where flooding occurred, and whether the vehicle's oil changes followed the manufacturer's recommendations.

To create a VHR, Carfax first obtains as much raw data as it can from approximately 112,000 sources, including sources such as state departments of motor vehicles, state police databases, manufacturers, car dealers, after-market service shops, insurance companies, vehicle repair centers, auctions, inspection sites, and other sources. It stores this data in a 600-square-foot server room in Columbia, Missouri. Carfax then performs an automated data cleansing process to remove incorrect or inconsistent entries from this data. It then uses its own proprietary systems to organize and merge this new data into its database.

When Carfax receives a request for a VHR concerning a particular vehicle, it extracts only the information from its database pertaining to that vehicle. It warns customers that the VHR reflects only the data supplied to Carfax and Carfax does not


guarantee either that the VHR contains all of the information relevant to that particular vehicle or that the information provided is accurate. There are vehicles for which Carfax never receives a VHR request, and there are instances in which Carfax extracts multiple VHRs over time for the same vehicle. A VHR for a particular vehicle may vary from a later VHR for the same vehicle if Carfax obtained additional data in the interim.

In October 2016, the Director of Revenue notified Carfax it was selected for an audit for sales and use taxes due between 2013 and 2016. The Director determined Carfax did not use the Disputed Equipment[2] to "manufacture" VHRs; therefore, its purchase of that equipment was not exempt from sales and use taxes. Based on this determination, the Director assessed $106,161.56 in taxes and interest. That amount also included an additional five percent because the Director had audited Carfax for the years prior to 2013, rejected Carfax's argument that it owed no sales or use taxes for equipment purchased that it used to "manufacture" VHRs,[3] and there had been no material change in Carfax's operations.

Carfax appealed the Director's decision to the AHC. The AHC found Carfax's purchases of the Disputed Equipment were exempt from sales and use taxes under both


section 144.030.2(5) and section 144.054.2[4] because Carfax used that equipment directly in "manufacturing" VHRs. The Director filed a petition for review with this Court pursuant to section 621.189.


This Court has exclusive appellate jurisdiction in all cases involving the construction of state revenue laws, Mo. Const. art. V, § 3, and this Court's standard for reviewing AHC decisions involving sales and use (and other) taxes is well established:

"This Court will affirm a decision of the AHC if it: (1) is authorized by law; (2) is supported by competent and substantial evidence on the whole record; (3) does not violate mandatory procedural safeguards; and (4) is not clearly contrary to the General Assembly's reasonable expectations." Bus. Aviation, LLC v. Dir. of Revenue, 579 S.W.3d 212, 215 (Mo. banc 2019); § 621.193; Mo. Const. art. V, § 18. This Court does not uphold a decision of the AHC if it is "arbitrary, capricious, unreasonable, unlawful, or in excess of jurisdiction." Myron Green Corp. v. Dir. of Revenue, 567 S.W.3d 161, 164 (Mo. banc 2019). This Court reviews the AHC's legal decisions de novo. Id. "This Court is not bound by the [AHC]'s interpretation and application of the law." Gervich v. Condaire, Inc., 370 S.W.3d 617, 620 (Mo. banc 2012).
"Taxing statutes must be strictly construed in favor of the taxpayer and against the taxing authority." Bartlett

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