Toolpushers Supply Co. (“Toolpushers”) is a Wyoming corporation with a retail location in Laurel, Mississippi. Toolpushers sells various items to the oil and gas industry, such as casings, tubing, drill pipes, pumping units, valves, wellheads, tanks, and other miscellaneous items related to energy exploration and production. During an audit of the 2013 through 2016 tax periods, the Mississippi Department of Revenue (“Department”) determined that Toolpushers failed to charge and remit sales tax on some sales, treating them as exempt sales. The Department assessed tax, penalties, and interest on such sales made to oilfield service providers that would be considered consumables or items for personal use and, therefore, subject to sales tax.
Toolpushers appealed the auditor’s assessment to the Board of Review (BOR), which found that regardless of whether the customer holds a valid sales tax permit, the evidence in this case clearly shows that the customer is using and consuming rather than reselling the products purchased. Toolpushers maintained that the sales at issue were wholesale sales, not retail sales, and were not subject to sales tax. On appeal, the Board of Tax Appeals agreed with the BOR that Toolpushers did not fulfill its obligation under the statute because it did not exercise “good faith” in determining items sold at the time of sale were made to a retailer regularly selling or renting property. Further challenging the decision, Toolpushers filed an appeal to First Judicial District Court of Appeals.1
The Court of Appeals determined that Toolpushers’ policy was to accept a customer’s retail sales permit as an “implied representation” that the purchaser is entitled to make purchases without paying retail sales tax. Toolpushers maintained that it was not required to do more than have a “good faith” belief that the purchase is being made by a retailer who intends to resell or rent the items purchased in the regular line business.
The Court disagreed, citing that the statute [Section 27-65-5(1)] has two requirements to exempt a purchase of tangible personal property from retail sales tax:
- The purchaser must be licensed under Section 27-65-27, if it is located in Mississippi.
- The purchaser must be a retailer who is making the purchase to sell or rent the items purchased in the regular line of business.
The determination required under the second clause must be made at the time of each sale. There was no evidence in this case that Toolpushers made any inquiries at the point of sale to determine the validity of the exemption, as its policy was to accept a retail permit as proof of exemption. The Court found that Toolpushers did not have a good faith basis to believe that the sales at issue were wholesale sales.
The implication of this decision is that the seller must look past a retail sales permit to determine the exemption for each sale using good business sense before exempting sales as wholesale sales to satisfy the “good faith” basis of the statute.
If you need a better understanding of what you need to do to accept an exemption certificate, please contact our Ryan experts listed below.
1 Toolpushers Supply Co. v. Department of Revenue (No. 2021-SA-01186-COA).
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- Topics
- Transaction Tax
- Mississippi