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Update: Missouri Supreme Court Affirms Resale Tax Exemption for Intercompany Modified Equipment

Tax Development Nov 10, 2023

Update: Missouri Supreme Court Affirms Resale Tax Exemption for Intercompany Modified Equipment

As reported earlier this year, a Walmart subsidiary, Starco, successfully challenged1 a denial of resale exemption before the Missouri Administrative Hearing Commission.

Starco was a purchasing company in the Walmart group of companies. It bought items on behalf of the group and then resold those items to related members. The Missouri Director of Revenue (“Director”) had disallowed Starco’s claimed resale exemption pertaining to the purchases of equipment on which the subsidiary loaded software or performed testing at its Missouri warehouse and sold the equipment to purchasers outside Missouri. The Director claimed that the purchase of IT equipment was subject to use tax because the extent of presale use exceeds the bounds of control a taxpayer can exert over tangible personal property before a claimed resale exemption. Relying on Custom Hardware Engineering & Consulting, Inc. v. Director of Revenue,2 the Director claimed that Starco engaged in a taxable use of the equipment by installing software and testing. Starco did not dispute the use of the equipment but relied on the fact that the purpose of the purchase was to resell the equipment to the Walmart Group. The Commission agreed with Starco that they were entitled to a resale exemption because to do otherwise would result in double taxation.

The Director appealed the decision to the Missouri Supreme Court, which ruled3 on November 7, 2023 that Starco was entitled to the resale exemption and found that the Director’s argument was not supported by the cases referenced. Specifically, Custom Hardware did not apply because Custom did not buy parts for “a subsequent taxable sale.”

The Court agreed with the Commission’s findings that “the undisputed facts show that [Starco’s] sole purpose for the…[e]quipment was to resell it to Stores/Clubs. Installing software or hardware specific to those stores’ needs only further evinces that purpose.”

The result in this case clearly supports a purchasing company structure in which an affiliate purchases equipment on behalf of a group of companies and then resells that equipment to other members of the group. This is an excellent planning strategy to maintain control and accuracy over group purchases and the taxation of tangible personal property. If you would like to learn more as to how this strategy can be beneficial to your company, please contact our Ryan tax professionals listed below.

Walmart Starco LLC v. Director of Revenue (No. 19-1217).

358 S.W. 3d 54 (MO banc) 2012.

3 Walmart Starco LLC v. Director of Revenue, Case number SC99998, Missouri Supreme Court.


Mark L. Nachbar

Brian Stromen

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