King v. Mound City Industries, Inc., 65204

• Decision Date: 20 March 1984
• Docket Number: No. 65204,65204
• Citation: 665 S.W.2d 935
• Parties: Richard A. KING, Director of Revenue, State of Missouri, Appellant, v. MOUND CITY INDUSTRIES, INC. and the Administrative Hearing Commission of Missouri, Hugh A. Sprague, Commissioner, Respondents.
• Court: Missouri Supreme Court

Page 935

665 S.W.2d 935

Richard A. KING, Director of Revenue, State of Missouri, Appellant, v. MOUND CITY INDUSTRIES, INC. and the Administrative Hearing

Commission of Missouri, Hugh A. Sprague,

Commissioner, Respondents.

No. 65204.

Supreme Court of Missouri,

En Banc.

March 20, 1984.

John Ashcroft, Atty. Gen., Melodie A. Powell, Asst. Atty. Gen., Jefferson City, for appellant.

Robert J. Swift, Jr., Jefferson City, for respondents.

BLACKMAR, Judge.

The Director of Revenue filed a notice of appeal under § 161.337, RSMo 1978, and Art. V, § 3, Missouri Constitution, seeking review of a decision of the Administrative Hearing Commission which reversed the assessment by the Director of Revenue of a tax of $41,858.01 under the Missouri Cigarette Tax Law (Chap. 149, RSMo) against respondent Mound City Industries, Inc., a Missouri taxpayer. We have jurisdiction because the question for review involves the construction of the revenue laws of the state. Art. V, § 3, Mo. Const.

The issue is whether respondent is responsible for remittance of cigarette taxes to the State on unaccounted-for cigarettes that once were in its possession, pursuant to §§ 149.015 and 149.011(8), RSMo 1978. There are no substantial factual questions, and so discussion of the standard of review is not necessary. We conclude that respondent owes the cigarette taxes here in question and accordingly reverse the decision of the Administrative Hearing Commission.

Mound City Industries, Inc. is a cigarette "wholesaler" as defined by § 149.011(12), RSMo 1978. As a wholesaler, it must submit cigarette inventory reports to the Director of Revenue as required by § 149.041.2, RSMo 1978, reading as follows:

Every wholesaler receiving unstamped cigarettes shall file a report with the director on or before the twentieth day of each month covering the previous calendar month, on forms prescribed and furnished by the director, disclosing the beginning and closing inventory of unstamped cigarettes, the beginning and closing inventory of stamped cigarettes, the beginning and closing inventory of cigarette stamps, the number and denomination of cigarette stamps affixed to packages of cigarettes, the beginning and closing inventory of meter machine units, the number of meter units purchased and affixed during the month, and all purchases of cigarettes by showing the invoice number, name and address of the consignee * * * or seller, the date, and the number of cigarettes purchased, and such other information as may be required by the director.

Section 149.015, RSMo Cum.Supp.1982 provides as follows:

1. A tax shall be levied upon the sale of cigarettes at an amount equal to six and one-half mills per cigarette.

Section 149.011(8) defines "sale" as follows:

"Sale", in this instance is defined to be and declared to include sales, barters, exchanges and every other manner, method and form of transferring the ownership of personal property from one person to another, and is also declared to be the possession of cigarettes for consumption, irrespective of how acquired; possession of cigarettes by any person other than a manufacturer, wholesaler or retailer shall be prima facie evidence of possession for consumption In the course of its business respondent purchases unstamped cigarettes from manufacturers and, upon receipt, stores the cigarettes in one of its two St. Louis area warehouses. Customer orders are filled from the unstamped stock. Before shipping cigarettes to a Missouri customer, respondent affixes the cigarette tax stamp required by § 149.015.2, and, in some cases, stamps required by other taxing units such as cities and counties.

The Department of Revenue conducted an audit of respondent for the period from August 31, 1979 to March 3, 1980 to determine its cigarette tax liability. The audit showed that 465,089 packages of cigarettes went through its warehouse without cigarette tax stamps having been affixed. Respondent does not dispute the findings.

During the audit period, respondent experienced cash flow problems which led its management to believe that some of its cigarette stock either was missing or had never been received. Extra controls were put into effect for the receiving and shipping of cigarettes. Respondent's management notified the St. Louis police of its suspicion of possible theft and police surveillance was conducted for two weeks at its two warehouses. The police surveillance uncovered nothing of a suspicious nature and the surveillance was withdrawn. After the audit period, the Pinkerton Detective Agency was hired in July of 1980 to conduct after-hours surveillance, but, like the St. Louis police surveillance, its efforts failed to produce any tangible evidence of theft.

Respondent notified the Director of Revenue of its inventory discrepancy only after it received notice of its tax liability for the unaccounted-for cigarettes. It grounds its refusal to remit the cigarette tax owing to the Department of Revenue on the basis that it did not collect the tax because, as it believes, the cigarettes were stolen. Testimony of its executives at the hearing indicated, however, that it has no real explanation as to why the 465,089 packages of cigarettes were missing. Counsel suggested the probability of an "inside job." This suggestion is of interest in view of the provisions of § 149.045, RSMo 1978 quoted below, regarding theft from a carrier.

It is the sense of the statutes that the public interest in the taxing of cigarettes be protected by holding the wholesaler responsible for the cigarette tax, once the cigarettes are accepted from a carrier. There are few instances in which cigarette tax is excused or waived, once the wholesaler acknowledges receipt from the carrier. Section 149.041.3 provides that

Any wholesaler who refuses any shipment or part of a shipment of unstamped cigarettes or has a shortage in the shipment of cigarettes consigned to him shall, in the monthly report next following the refusal or shortage, report to the director the number of packages or cartons of cigarettes refused or short and the name of the carrier from whom the cigarettes were refused or shortage occurred.

Section 149.045.2 reads as follows:

Any consignee who discovers a shortage in transit after signing a receipt of delivery shall be held responsible for the full tax on the total amount of cigarettes shown on the receipt of delivery. In all other instances of shortage in shipment of cigarettes as evidenced by waybill or invoice, the carrier shall be held liable for the tax due on all missing cigarettes unless the carrier shall furnish proof satisfactory to the director that the cause of the shortage was due to the theft of the cigarettes by a person outside the employment of the carrier. Provided, the proof is satisfactory to the director, the tax on the missing cigarettes shall be waived. The proof shall be stated on forms furnished and prescribed by the director. (Emphasis supplied).

Thus, the only time cigarette tax is expressly waived for theft is when the carrier can satisfactorily prove that the cigarettes were stolen by a person not employed by it. There are no provisions for waiver of the wholesaler's cigarette tax liability when the cigarettes are simply unaccounted for as in the present case. We need not decide what the holding would be if a definite shortage could be demonstrated following a burglary, heist, or hijacking.

The apparent purpose of the rigidly drawn exceptions to the wholesaler's cigarette tax liability is to protect the State against "bootlegging" or cheating on the tax. See ITT Canteen Corporation v. Spradling, 526 S.W.2d 11, 20 (Mo.1975).

Mound City's contention that the tax is levied only upon the sale of cigarettes to the consumer as indicated by § 149.015.4 is not supported by the statutory language. That section provides that

It shall be the intent of this chapter that the impact of the tax levied hereunder be absorbed by the consumer or user and when the tax is paid by any other person, the...