Detailed Missouri Development
What a difference a year makes. Last year, the Kansas City Chiefs were reeling from a loss at home to the New England Patriots in the AFC Championship. Not long after, the Missouri Administrative Hearing Commission (AHC) dealt the Chiefs another blow by finding the team liable for nearly $1 million in Missouri sales and use tax, plus interest, related to the team’s stadium renovations. This year, the Chiefs broke through the playoffs to win the Super Bowl, and the Missouri Supreme Court reversed the AHC’s decision, holding that the team was not liable for purchases made for the stadium renovations.
The Chiefs had been audited by the Missouri Department of Revenue for tax periods during which time the team renovated Arrowhead Stadium, which was part of the county-owned Harry S. Truman Sports Complex in Kansas City. A county authority had been created to act as landlord and oversee operations for the complex. The stadium renovations were to be funded by a county-wide sales tax increase, cash contributions from the team, and the sale of tax credits provided by the state to the team. The project fund for the renovations was established as an indentured trust account created by the county; it specifically provided that the funds in the account belonged to the county. The development agreement for the renovations delegated operational responsibility to the team, but required the team to follow a specific procedure to obtain the approval of the county and the county authority for disbursement of monies from the project fund. The team utilized a tax exemption certificate to purchase items from vendors for the renovations without paying sales tax.
In 2014, the Department of Revenue completed an audit of the Chiefs and assessed sales and use tax for various items purchased as part of the renovations, including stadium furniture, scoreboards, televisions, a statue of the team’s founder, and wayfinding signs. The Chiefs appealed to the AHC, which released its opinion last year holding that the Chiefs were liable for sales and use tax on the contested items.
On appeal to the Missouri Supreme Court, the Court first noted that, while taxpayers have the burden to establish the right to an exemption, the Department of Revenue had the burden to establish a tax liability in the first place. Central to the AHC’s decision was a finding that the team gave consideration for the contested items in the audit, and that the team acquired ownership of the items. In reviewing the sales and use tax statutes, the Court stated that a “purchaser” liable for sales and use tax must (1) provide valuable consideration (2) in exchange for the acquisition of ownership over the property. Someone that does not provide valuable consideration for property cannot be deemed to be a “purchaser.”
The Court then examined the ownership of the project fund used to finance the stadium renovations. Although proceeds from the sale of tax credits owned by the team were placed in the fund, the Court disagreed with the AHC that these funds remained the property of the team. Instead, the Court found that under the relevant statutory scheme and governing agreements, the tax credit proceeds belonged not to the team, but to the county and county authority. The Court also found that there was no legal basis to determine that other funds donated by the team for the purpose of renovations remained the team’s property. By agreement, the monies in the project fund belonged to the county. Therefore, because the team did not provide valuable consideration in exchange for the contested items in the audit, it was not the purchaser of the items for sales and use tax purposes. The Court reversed the AHC’s decision and entered judgment in the team’s favor. Please contact Jeff Cook at (816) 802-5225 with questions on The Kansas City Chiefs Football Club, Inc. v. Director of Revenue.
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