Lynn v. Director of Revenue

• Decision Date: 30 April 1985
• Docket Number: No. 66130,66130
• Citation: Lynn v. Director of Revenue, 689 S.W.2d 45 (Mo. 1985)
• Parties: Richard LYNN d/b/a Kansas City Excursion, Appellant, v. DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

Page 45

689 S.W.2d 45

Richard LYNN d/b/a Kansas City Excursion, Appellant, v. DIRECTOR OF REVENUE, Respondent.

No. 66130.

Supreme Court of Missouri En Banc.

April 30, 1985.

Robert A. Sundblad, Kansas City, for appellant.

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

GUNN, Judge.

This case involves review of a decision of the Administrative Hearing Commission affirming the Director of Revenue's assessments of sales tax deficiencies and penalties against the taxpayer-petitioner for the years 1976 through 1979. This Court has jurisdiction by virtue of Mo. Const. art. V, § 3. The issues are whether: 1) the taxpayer's operations are interstate commerce and, hence, exempt from sales taxes under § 144.030.1, RSMo Cum.Supp.1984; 2) statements of Department of Revenue officials estop the Director of Revenue from assessing sales taxes and penalties against the taxpayer; 3) the taxpayer's good faith actions preclude imposition of penalties; and 4) the statute of limitations applies to tax assessments prior to 1978.

We affirm the decision of the Administrative Hearing Commission affirming the assessments of sales taxes and penalties against the taxpayer.

The taxpayer owns and operates a vessel and barge through which he conducts an excursion-sightseeing business on the Missouri River in the vicinity of Kansas City. For a fare, passengers ride on the river and may dine and dance on the way. Although the vessel traverses into Kansas as the navigational channel requires, regular operations call for passengers to embark and disembark from the same point, which is in Missouri. Admission fees for the excursions are collected in Missouri, and charter contracts are approved at the taxpayer's home office which also is in Missouri.

In 1967, the taxpayer was first contacted by Department of Revenue employees concerning a possible liability for sales taxes on admission fees for excursions. His attorney was ultimately advised that the taxpayer's operation was exempt.

The taxpayer had no further contact with the Department of Revenue regarding sales tax until 1976 when his books were audited and he received a sales tax assessment for the two-year period of April 1, 1974 through March 31, 1976. Again, the taxpayer requested counsel to inquire into his tax liability. A Revenue Department employee in Kansas City then gave an opinion that the state had waived the right to collect taxes but attached the caveat that verification from Jefferson City would be required. The taxpayer took no further action, nor did he appeal the 1974-76 assessment. Neither did he file tax returns or collect sales tax. This inaction was contrary to his counsel's advice to "prepare himself" in order to avoid legal dispute, for it appeared that payment of sales tax would be sought.

In 1980, the taxpayer's business records were again audited and assessment placed for the period from January 1, 1976 through December 31, 1979. Asserting interstate commerce as basis for exemption, the taxpayer made an unavailing appeal of this latter assessment to the Commission. Appeal from the Administrative Hearing Commission's ruling has followed to this Court.

The first issue concerns the matter of interstate commerce. Section 144.030.1, RSMo Cum.Supp.1984, specifically provides that sales in interstate commerce are exempt from state sales tax. The taxpayer contends that its operations are part of interstate commerce and, hence, exempt under § 144.030.1. The Director of Revenue argues otherwise.

Coincidentally, in asserting their respective positions, the taxpayer and the Director rely, in certain respects, on City of St. Louis v. Streckfus, 505 S.W.2d 70 (Mo. banc 1974), appeal dismissed, 419 U.S. 810, 95 S.Ct. 24, 42 L.Ed.2d 37 (1974), a case which outwardly seems to provide the clear answer for this case. It does not.

In Streckfus, the operator of the excursion boat Admiral claimed exemption from a City of St. Louis license fee on coin operated amusement devices on the boat, contending its operations involved interstate commerce. The Admiral's operations, similar to those of the vessel in this case, involved non-stop sightseeing tours on the Mississippi River from St. Louis. There was only incidental traversing in another state's waters, and all aspects of the excursions were connected with Missouri.

In Streckfus, this Court found the Admiral's operations to be interstate commerce: "The transportation of passengers in this case by boat on a boundary river in a continuous non-stop journey from and to the same point in Missouri during which the boat crosses the boundary line into and traverses the waters of Illinois is interstate commerce." Id. at 73-74. The interstate commerce holding of Streckfus is founded on Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 68 S.Ct. 1260, 92 L.Ed. 1633 (1948), which disallows local interference with interstate commerce by the device euphemistically referred to as "local control."

Streckfus, however, does not afford the taxpayer the relief he seeks. The Director of Revenue properly argues that under Streckfus, the interstate character of the excursion vessel's operations and tourist activities do not present an insuperable barrier to local regulation nor impose an undue burden upon interstate commerce. In this regard, the local regulations upheld in Streckfus are consistent with Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), reh'g denied, 430 U.S. 976, 97 S.Ct. 1669, 52 L.Ed.2d 371 (1977), which holds that the Commerce Clause does not absolutely forbid local regulation of interstate commerce when there is a substantial nexus with the taxing state. ¹ Commerce clause aside, there is a substantial basis for affirming the Administrative Hearing Commission. It appears that Fostaire Harbor, Inc. v. Missouri Director of Revenue, 679 S.W.2d 272, 273 (Mo. banc 1984) is directly on point with the issues here presented.

In Fostaire, a taxpayer challenged the assessment of sales tax on the admission fees he charged for sightseeing tours by helicopter. The helicopter flights which began and ended at a barge moored in the Mississippi River were structured to provide the passengers with a bird's eye view of the historic sights of St. Louis. This Court held that the helicopter flights "come under the description of a place of amusement, and the fees paid for such a tour are subject to sales tax." 679 S.W.2d at 273.

The excursions provided by the taxpayer in this case are within the same category as the helicopter tours involved in Fostaire. Passengers do not board the vessel with the expectation that they will be carried to another port by the end of the voyage. The sole objective of boarding the vessel is for personal recreation and diversion. The use of the taxpayer's vessel and barge is not "transportation." Its use is for entertainment purposes, and it therefore falls within the ambit of Fostaire. But cf., Bob-Lo Excursion Co. v. Michigan, supra, note 1.

For the purposes of this case, it does not matter whether the taxpayer's services are considered transportation or otherwise interstate commerce. The business of transporting passengers is not what is being taxed. The object of the taxation in this case is the admission fee charged for a place of amusement or recreation. Although admission fees to a place of amusement and items sold therein are retail sales, City of Springfield v. Director of Revenue, 659 S.W.2d 782, (Mo. banc 1983); St. Louis Country Club v. Administrative Hearing Commission, 657 S.W.2d 614 (Mo. banc 1983), the fees charged are not retail sale transactions "made in interstate commerce." Curtis Publishing Co. v. Bates, 363 Mo. 287, 250 S.W.2d 521, 523 (1952). Instead, the admission fees are purely local transactions.

The obligation to pay for the excursions arise solely in Missouri. On regularly scheduled tours, passengers purchase tickets as they board the taxpayer's vessel while it is moored in Missouri. All contracts and deposits for chartered tours are sent to the home office in Missouri for acceptance. The taxpayer may occasionally collect the final portion of a fare while on the Kansas side of the Missouri river, but the duty to pay for the fare arises before the vessel leaves the Missouri-based dock. It is clear that the admission fees charged by the taxpayer are solely Missouri retail sales, and, therefore, the exemption provided in § 144.030.1, RSMo. Cum.Supp.1984, does not apply.

The taxpayer next argues that the statements of two Department of Revenue employees serve as basis for asserting the doctrine of estoppel against back taxes and penalties. The first such statement allegedly was made in 1967, advising that the taxpayer's operations were exempt from sales tax. The second occurred following the 1976 audit and assessment and purportedly advised the taxpayer that the state had waived its right to collect back sales taxes. Although this latter statement was to be followed by a clarification, none was forthcoming.

The doctrine of equitable estoppel is rarely applied in cases involving a governmental entity, and then only to avoid manifest injustice. Bartlett & Co. Grain v Director of Revenue, 649 S.W.2d 220, 224 (Mo.1983). Under the facts presented by the taxpayer, no manifest injustice has been demonstrated.

The incidence of taxation is determined by law, and the Director of Revenue and subordinates have no power to vary the force of the statutes. St. Louis Country Club v. Administrative Hearing Commission, 657 S.W.2d at 616. Moreover, statements made by a Revenue employee in 1967 cannot bind future directors of the Department nor limit the state's right to collect taxes properly owing. Id.

Later statements made by another Revenue employee sometime after the 1976 audit and assessment do not serve as absolution from the taxpayer's tax liability. That employee indicated an anticipated change of...