President Casino v. Director of Revenue

• Decision Date: 17 April 2007
• Docket Number: No. SC 87722.,SC 87722.
• Citation: President Casino v. Director of Revenue, 219 S.W.3d 235 (Mo. 2007)
• Parties: PRESIDENT CASINO, INC., Trustee of the Distribution Trust, Appellant/Cross-Respondent, v. DIRECTOR OF REVENUE, Respondent/Cross-Appellant.
• Court: Missouri Supreme Court

219 S.W.3d 235

PRESIDENT CASINO, INC., Trustee of the Distribution Trust, Appellant/Cross-Respondent, v. DIRECTOR OF REVENUE, Respondent/Cross-Appellant.

No. SC 87722.

Supreme Court of Missouri, En Banc.

April 17, 2007.

James W. Erwin, Janette M. Lohman, Thompson Coburn LLP, St. Louis, for Appellant/Cross-Respondent.

Jeremiah W. (Jay) Nixon, Atty. Gen., Evan J. Buchheim, Asst. Atty. Gen., James L. Spradlin, Jefferson City, for Respondent/Cross-Appellant.

LAURA DENVIR STITH, Judge.

President Riverboat Casino-Missouri, Inc. ("President")¹ seeks review of the portion of a decision of the Administrative Hearing Commission ("AHC") that denied President's claim for a refund of use tax it paid on certain gaming equipment. The Director of Revenue ("Director") seeks review of the remaining portion of the AHC's decision, which granted President's claim for a refund of sales and use taxes President paid on its purchases of certain food and drink under the "resale" exemption even though President provided the food and drink to customers on a complimentary basis.

This Court affirms the AHC's holding that President is not entitled to a refund of the use tax it paid on gaming equipment. The gaming tax is not the functional equivalent of the sales tax, and President is not entitled to claim the tax exemptions that Missouri law applies to sales and use taxes. The gaming tax is a separate tax the legislature imposes on adjusted gross receipts of certain gaming activities, not on sales or purchases. Accordingly, the Director properly required President to pay both the use tax on its out-of-state purchases of gaming equipment and the gaming tax on its adjusted gross receipts from use of the gaming equipment in its facilities.

This Court reverses the AHC's holding that President is entitled to a refund of sales and use taxes paid on its purchases of food and drink used to provide complimentary meals to certain of its customers under the resale exemption from sales and use tax. To be entitled to the resale exemption, the taxpayer must resell the item purchased or incorporate its value into other items it resold. The record shows that President did not factor the cost of these complimentary meals into the price of meals it sold, but rather factored their cost into the "payout" of its slot machines. As this payout is subject to the gaming tax, not the sales or use tax, the resale exemption does not apply. The AHC's decision is affirmed in part and reversed in part, and the case is remanded.

I. FACTUAL & PROCEDURAL BACKGROUND

A. President's Gambling Boat Operation.

President is a licensed gambling excursion boat that operates slot machines and gaming tables. President also has a restaurant and a deli on its premises. President rewards its customers with certain benefits based on their amount of play at President's machines and tables. For example, customers who bet $90,000 in one year are entitled to two complimentary buffet meals at President's restaurant and two complimentary deli meals. President also sends coupons for benefits such as free meals to certain customers based on the amount of their play.

Missouri law mandates that President and other casinos pay out at least 80% of all wagers placed. Sec. 313.805(12), RSMo 2000.² President's slot machines have an average payout of 93.446%. When determining the rate at which to set its slot machines' payout, President considers all of its operating costs, including the cost of the complimentary meals provided to its customers, which President refers to as "comps."

B. Gaming Tax Payments.

Like all other Missouri excursion gambling boats, President is required to pay a tax "on the adjusted gross receipts received from gambling games ... at a rate of twenty percent." Sec. 313.822. Adjusted gross receipts are the difference between "the total sums wagered" and the "winnings paid to wagerers." Sec. 313.800(1), (15), RSMo Supp.2006. Accordingly, President pays a tax on the amount its customers lose while gambling or, stated another way, on the amount President wins from its customers.

C. Sales and Use Tax Payments and Refund Claims.

Additionally, like other companies doing business in Missouri, President is subject to sales tax and use tax. These two types of taxes are part of a system of taxation of tangible personal property that focuses on sales "at retail." Sipco, Inc. v. Dir. of Revenue, 875 S.W.2d 539, 541 (Mo. banc 1994). Retail sales that occur within Missouri are subject to a sales tax under section 144.020, RSMo Supp.2006, which imposes a tax "upon all sellers for the privilege of engaging in the business of selling tangible personal property ... at retail in this state." Out-of-state purchases are subject to a compensating use tax under section 144.610, which imposes a tax "for the privilege of storing, using or consuming within this state any article of tangible personal property." During the period in question, President collected and paid sales tax on the meals it sold to customers at its restaurant and deli. Sec. 144.020, RSMo Supp.2006. It paid use tax on the "comps" it provided to special customers. Additionally, President paid use tax on slot machines and other gaming equipment it purchased from out-of-state vendors. Sec. 144.610.

In 1998, the Director began an audit of President's sales and use tax returns for the years 1995 through 2002. In 2001,³ the auditor discovered two problems related to the tax reported on "comps." First, President erred in paying use tax on the food and drink purchased for these "comps;" it should have paid sales tax because the food and drink were purchased within Missouri. Second, President had erroneously computed the use tax at the higher rate of tax applicable to non-food purchases.

After receiving the results of the audit, President filed a refund claim for the use tax it paid on its "comps" purchases for the period from January 1998 to September 2000. After the auditor offset the use tax President had incorrectly paid against the sales tax that it should have paid and applied the correct lower rate of tax, President received a $115,547.33 refund.

Later, President filed claims for refund of all sales and use taxes it paid on the food purchased for "comps" for the period from January 1995 to February 2003. It noted that both the sales tax and use tax statutes contain exclusions and exemptions that eliminate taxation of the sale or use of property that is to be resold (collectively the "resale exemption"). Sec. 144.010.1(10), RSMo Supp.2006 (sales tax resale exclusion); sec. 144.615(6), RSMo Supp.2006 (use tax resale exemption). "These sections avoid multiple taxation of the same property as it passes through the chain of commerce from producer to wholesaler to distributor to retailer." Sipco, 875 S.W.2d at 541. President argued that this resale exemption applied to the food it provided on a complimentary basis to certain customers, and so it should not have paid either sales tax or use tax of any amount on these purchases.

At around the same time, President filed two refund claims for use tax it had paid on its purchases of gaming equipment⁴ from out-of-state vendors for the periods from January 1995 to December 1997 and January 2000 to December 2002. President claimed that these purchases qualified for the use tax resale exemption. See sec. 144.615(6), RSMo Supp.2006. Additionally, President claimed that an exemption afforded to coin-operated amusement businesses applied to its purchases of slot machines. See sec. 144.518, RSMo Supp. 2006.

D. Director's Denial of Claims and Administrative Review.

In July 2003, the auditor denied the merits of President's claim that it should have paid no use tax on its purchase of gaming equipment for the periods January 1995 through December 1997 and January 2000 through December 2002. The auditor also denied President's claim that it owed no sales or use tax at all on "comps" for the period from January 1995 through February 2003. As with the tax period from January 1998 to September 2000, however, the auditor found that President had erroneously paid use tax rather than sales tax for the period from January 1995 through December 1997, and again, the auditor allowed an offset of these taxes.⁵ The Director issued final decisions affirming the conclusions of the auditor, and President sought review by the AHC. See sec. 621.050.1.

After a hearing on President's claims, the AHC agreed with the Director that President was not entitled to a refund on the use tax it had paid on its purchases of gaming equipment. In so doing, the AHC rejected President's argument that the gaming tax incorporated the substantive provisions of the sales tax law, including exclusions and exemptions applicable to sales tax and use tax. But the AHC held that President was entitled to a refund of the tax it paid on purchases of food and drink used as "comps" because it "resold" these purchases when it collected sales tax on meals sold to customers.⁶

President and the Director sought judicial review of those portions of the AHC decision with which they disagreed. See sec. 621.189, RSMo Supp.2006. Because their claims involve construction of Missouri's revenue laws, this Court has exclusive appellate jurisdiction. Mo. Const. art. V, sec. 3.

II. STANDARD OF REVIEW

This Court conducts de novo review of the AHC's interpretation of revenue laws and will uphold the AHC's decision if it is "authorized by law and supported by competent and substantial evidence upon the whole record." Six Flags Theme Parks, Inc. v. Director of Revenue, 179 S.W.3d 266, 268 (Mo. banc 2005); sec. 621.193. Taxing statutes are to be strictly construed in favor of the taxpayer and against the taxing authority. ACME Royalty Co. v. Dir. of Revenue, 96 S.W.3d 72, 74 (Mo. banc 2002). The opposite is true of tax exemptions; they "are to be strictly construed against the taxpayer, and any doubt is resolved in favor of application of the tax."...