News and Insights

United States Supreme Court Denies Writ of Certiorari in Missouri Local Use Tax Case

Tax Development Dec 09, 2005

On December 5, 2005, the petition for a writ of certiorari was denied by the United States Supreme Court for Kirkwood Glass Company v. Missouri Director of Revenue, Docket Number 05-452. The court's refusal to review the case affirms the denial of a taxpayer's refund claim by the Missouri Supreme Court holding that Missouri's statutes permitting local use taxes are constitutional. The taxpayer, Kirkwood Glass, had sought a refund on the basis that its purchases from out-of-state suppliers were taxed more heavily than purchases from certain in-state suppliers.

The Missouri statute authorizing cities and counties to impose use taxes requires the local use tax imposed by a city or county be the same tax rate as that city's or county's sales tax rate. Despite this requirement, a combination of Missouri tax statutes creates a unique situation where purchase transactions coming into Missouri can be taxed more heavily than transactions conducted wholly within the state. First, the Missouri use tax is only levied on interstate purchase transactions; purchases from Missouri sellers are exempt from the use tax. Second, Missouri sales tax transactions are taxed at origin, but use tax transactions are taxed at the destination. Third, Missouri cities and counties have implemented local taxes at widely varing rates. In some localities this combination results in interstate transactions bearing higher taxes than intrastate transactions. For example:

Purchaser in St. Louis orders a widget from a retailer in Blue Summit, Missouri. The widget is shipped by the Blue Summit retailer to Purchaser in St. Louis. The transaction is an intrastate sale subject to sales tax at the seller's location, in this situation, sales tax totaling 4.725%. (4.225% state sales tax and .5% Jackson County sales tax.)

Alternatively, Purchaser in St. Louis orders the identical widget from a retailer in Chicago. The widget is shipped by the Chicago retailer to Purchaser in St. Louis. The transaction is an interstate purchase subject to the use tax at the purchaser's location, in this situation, use tax totaling 6.950%. (4.225% state use tax and 2.725% city of St. Louis use tax.)

The Missouri Supreme Court determined outcomes such as the example above were not in violation of the commerce clause of the U.S. Constitution, despite the fact that the interstate transaction bore a heavier tax burden. The court determined that as long as interstate purchases were not subject to use tax at a higher rate than sales transactions conducted wholly within that city or county, no impermissable discrimination occurred.