Missouri: Supreme Court Upholds Sales Tax Assessment on Hotel Room Furnishings

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Detailed Missouri Development

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The Missouri Supreme Court recently upheld a sales tax assessment on a taxpayer’s sales of furnishings and supplies to its parent company, which owned and managed a number of hotels in Missouri.  The sales at issue were items such as chairs, desks, décor, and linens used to furnish hotel rooms. Following an audit, the taxpayer was assessed sales tax on these transactions. After the Administrative Hearing Commission upheld the assessment, the taxpayer appealed to the Missouri Supreme Court.

Under Missouri law, sales of tangible personal property for the purpose of resale to another customer are exempt from sales tax. The issue before the court was whether the taxpayer was selling the items to its parent company for resale to hotel guests.  The taxpayer argued that the elements of a “resale” were identical to the elements of a “sale at retail,” as defined in the use tax statutes, which included a transfer of “the right to use, store or consume” tangible personal property for consideration. Because the parent company included the cost of room furnishings in the nightly hotel room rate, and hotel customers had a “right to use” the room furnishings, the taxpayer asserted that the transaction between the parent and the hotel customer met the definition of a “sale at retail.”  The court disagreed, noting that this was a sales tax case and the taxpayer was incorrectly relying on the definition of “sale at retail” in the use tax statutes. A “sale at retail” is defined in the sales tax statutes as a transfer “of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption.” For a transaction to be exempt from sales tax, the court concluded, the resale must include the transfer of title or ownership, not merely the transfer of the right to use the property. The court acknowledged that the taxpayer’s reliance on the use tax statute in a sales tax case was understandable, as the court itself had cited to use tax cases when analyzing sales tax resale exemptions for at least 25 years. Despite its role in adding to the confusion, the court concluded that the language in the sales tax statute was clear and that the taxpayer’s sales were not exempt sales for resale. Please contact John Griesedieck at 312-665-3024 for more information on DI Supply I, LLC v. Director of Revenue.

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US