Custom Hardware Engineering & Consulting, Inc. v. Director of Revenue
2012 Mo. LEXIS 8
| Mo. | 2012Background
- CHE purchases out-of-state computer parts shipped to Missouri for testing and certification before use.
- CHE unpacks, inspects, tests, repackages, certifies, and then ships parts to customers, retaining title until use.
- CHE faced use-tax liability after auditor concluded testing amounted to taxable use; it paid sales tax and use tax under protest.
- CHE argued testing constituted temporary storage under section 144.605(18) and 144.605(13).
- AHC held testing/certification was a taxable use under section 144.610, and calculated use tax plus additions.
- CHE challenged the AHC decision on four points, including use tax liability, resale exemption, authority to increase deficiency, and additions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does testing/certification constitute taxable use under section 144.610? | CHE—testing is temporary storage under 144.605(18). | Director—testing exceeds temporary storage and is a taxable use. | Testing constitutes a taxable use; CHE liable for use tax. |
| Is there a resale exemption governing CHE's purchases for testing and use by customers? | CHE seeks resale exemption for subsequent sale | ICC controls; exemption only for purchases for subsequent taxable sale | Resale exemption not available; ICC controls. |
| May the AHC increase the deficiency beyond the director's initial assessment? | AHC cannot increase; limited by director's assessment | AHC may increase; authorized when reviewing director's assessment | AHC has authority to increase CHE's tax liability above the initial assessment. |
| May additions to tax be assessed if CHE is liable for use tax? | If not liable for use tax, additions cannot apply | Additions properly follow from liability determined | Additions affirmed as CHE was liable for use tax. |
Key Cases Cited
- ICC Management, Inc. v. Director of Revenue, 290 S.W.3d 699 (Mo. banc 2009) (resale exemption limited to purchases for subsequent taxable sale)
- J.C. Nichols Co. v. Director of Revenue, 796 S.W.2d 16 (Mo. banc 1990) (AHC independent to increase or modify director's action)
- State Tax Commission v. Administrative Hearing Commission, 641 S.W.2d 69 (Mo. banc 1982) (AHC's role as independent, not bound by director's deficiency notice)
- MFA Petroleum Co. v. Director of Revenue, 279 S.W.3d 177 (Mo.2009) (AHC findings upheld on substantial evidence standard)
- DST Sys., Inc. v. Dir. of Revenue, 43 S.W.3d 799 (Mo. banc 2001) (de novo review of AHC interpretations of revenue laws)