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In the United States, sales tax is generally assessed only on the final “sale” of a good to a consumer or end-user. A “sale for resale” is therefore normally exempt from paying tax. But what qualifies as a
“resale”? For example, if a hotel purchases furniture for its rooms, does it then “resell” that furniture every time it rents that room to a guest? Or must sales tax be collected on the initial sale of the furniture to that hotel?
The Missouri Supreme Court addressed these specific questions in a March 17, 2020, opinion, DI Supply I, LLC v. Director of Revenue. DI Supply I, LLC, sold more than $11 million in room furnishings–beds, chairs, desks, wall art, etc. to the Drury Hotels chain between 2012 and 2015. DI Supply did not collect or remit sales tax on any of these sales. The State of Missouri’s Director of Revenue subsequently conducted an audit, determined DI Supply was liable for sales tax, and made a total assessment of tax (plus interest) of $613,159.38.
DI Supply unsuccessfully challenged the Director’s decision at an administrative hearing. The company then appealed directly to Missouri’s Supreme Court, which has exclusive jurisdiction under that state’s constitution to interpret tax laws. In a 5-1 decision, the Court sided with the Director and held DI Supply was liable for the sales tax.
DI Supply’s legal challenge centered on a specific clause in Missouri’s resale exemption statute that excludes “items of a non-reusable nature which are furnished to the guests in the guests’ rooms” from the state’s sales tax. As written, this exemption covers items like “soap, shampoo, tissue and other toiletries and food or confectionery items offered to the guests without charge.” DI Supply maintained this should also extend to the furniture in the room, as those items were also included in the “nightly rate for a hotel room.” In other words, DI Supply said that Drury Hotels was actually “reselling” the furniture each time it rented out the room.
While this argument might sound ludicrous – and indeed, was rejected by the Court – there was some legal basis for DI Supply’s position. There are several past rulings from the Missouri courts, some dating back 25 years, that define a “resale” to include the transfer of the “right to use” tangible personal property, such as furniture. The problem, the Court said, was that these decisions interpreted Missouri’s use taxlaws, not its sales tax laws.
As far as the Court was concerned in 2020, a “sale at retail”– i.e., a sale subject to sales tax – requires a “transfer of title or ownership for the purchaser’s use or consumption.” A transaction that only transfers the “right to use,” such as a guest renting a hotel room for the night, does not count. When DI Supply sold its furniture, there was a transfer of title to Drury Hotels. Conversely, when Drury later rented its rooms with that furniture, there was no transfer of title to the individual guests. DI Supply therefore had to pay the sales tax bill.
As noted above, the Supreme Court’s decision was not unanimous. One judge, Zel M. Fischer, authored a dissenting opinion. He argued that the Court’s prior rulings with respect to the use tax should apply to the sales tax as well. After all, Fischer observed, the sales and use tax statutes were meant to “complement each other,” so it only made sense that “their respective language must be harmonized to allow for identical application.”
Fischer argued that his colleagues were effectively overturning 25 years of precedent. This not only violated stare decisis–the doctrine that judges should stick to their previous rulings; it also made little sense to interpret the sales and use tax statues differently. Ultimately, Missouri’s General Assembly establishes tax policy. Fischer said if the legislature wanted to set different rules for sales and use taxes, it could do so.
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