The Kansas City Chiefs’ woes continue. Not long after the team’s loss at home to the New England Patriots in the AFC Championship, the Missouri Administrative Hearing Commission (Commission) found the Kansas City Chiefs Football Club (Team) liable for nearly $1 million in Missouri sales and use tax, plus interest, related to the Team’s stadium renovations.
The Missouri Department of Revenue (Department) audited the Team for tax periods from January 2008 through January 2011, during which time the Team renovated Arrowhead Stadium where it plays its home games, as well as team administrative offices and a training facility, all located in Jackson County, Missouri. These facilities, as well as Kauffman Stadium, the home of the Kansas City Royals, comprised the Harry S. Truman Sports Complex (the Complex).
Jackson County (County) created the Jackson County Sports Complex Authority (Authority) under state law to act as landlord and oversee operations for the Complex. The County leased the Complex to the Authority, and the Authority subleased the portion of the Complex that included Arrowhead stadium, the team offices, and the training facility to the Team. In 2006, the Team entered an agreement with the County and the Authority to renovate Arrowhead Stadium. The County held an election to approve a county-wide sales tax increase to partially fund the renovations, and the tax increase was approved by voters. The revenue from the tax increase was used by the County to repay bonds issued for the renovations. The project fund for the renovations also included monetary contributions from the Team, as well as proceeds from the Team’s sale of tax credits provided by the state (the non-bond proceeds). The project fund also included investment earnings from both the bond and non-bond proceeds.
In 2014, the Department of Revenue finalized its sales and use tax assessment of the Team for the audit period. The Team disagreed with eleven items in the assessment, and appealed the Department’s decision to the Commission. The contested items included stadium furniture, scoreboards, televisions, a statue of the Team’s founder, display cases, and interactive video equipment displayed at the stadium.
The Team advanced numerous arguments on appeal, including: the Department had the burden of proof regarding the Team’s tax liability; the Department’s assessments were barred by the statute of limitations; the Team was not the owner of the items subject to the Department’s assessment; the contested items were exempt because they were purchased by the County; the contested items represented construction materials that were exempt under a project exemption certificate validly used by the Team; the contested items were resold by the Team to the Authority or County; and the Department had erroneously assessed use tax instead of sales tax.
On review, the Commission first determined that, by statute, the Department had the burden of proof regarding the Team’s tax liability. The Commission, however, rejected the Team’s argument that the assessment was barred by the statute of limitations since the Team had signed binding waivers of the statute during the audit.
With regard to the title and ownership of the contested items, the Commission found the Team could not point to any contract provision that stated title or ownership of the items would pass to the County, a tax exempt entity. Although both the County and the Team had made partial payments for the items through their contributions to the renovation project fund, the Commission determined that a majority of the contested items were purchased from the Team’s non-bond proceeds and investments earnings. Further, these funds never became the property of the County because the Team still had rights to control the property, such as selling or assigning the state tax credits.
The Commission also found that none of the items purchased were “construction materials” that were incorporated into or consumed in the construction of the renovated facilities. Instead, the purchases consisted of items of tangible personal property, such as furniture, signage, or televisions. Further, there was no evidence that the contested items were billed to the County or Authority. For several of the contested items, the Team was listed as the “owner” in the contracts for the purchase of the items.
With respect to the Team’s argument that the contested items were resold to the County or Authority, the Commission found no evidence of a transfer of title or ownership. The Team presented no contracts or documentation on this point, and the Authority had admitted in discovery that it did not purchase any of the contested items.
Finally, the Commission considered the Team’s argument that they had been improperly assessed use tax rather than sales tax. Here, the Commission noted that most of the vendors of the contested items were out-of-state businesses, and therefore, sales by these vendors were subject to use tax. There was one contract involving several contested items where the general contractor was a Missouri business, however, and the Department had assessed use tax. Because in-state businesses are subject to sales tax, and because the Commission could not convert a use tax assessment to a sales tax assessment, the Commission removed the amounts related to this contract from the Team’s assessment.
In total, the Commission found the Team liable for $929,946 in tax, plus statutory interest. Although no instant replay review is available, the Team has the option to appeal the Commission’s decision to the Missouri Supreme Court. Please contact John Griesedieck at 312-665- 3024 with questions on this ruling.
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