16 S.W.3d 588 | Mo. | 2000
On September 30, 1997, Appellant Zip Mail Services, Inc. (Zip Mail) filed a petition with the Administrative Hearing Commission (AHC) regarding assessments issued by the Director of Revenue (Director) against Zip Mail for unpaid use tax for years 1991 through 1995. The AHC held a hearing and filed its findings of fact and conclusions of law. It found that Zip Mail was properly subject to the use tax, along with accrued interest and additions assessed by the Director. On October 28, 1999, Zip Mail filed its petition for review in this Court. We affirm the determination of the AHC.
I.
Zip Mail is a Missouri corporation in the business of processing mail from customers in the St. Louis, Chicago, and Detroit metropolitan areas. Once mail is received, Zip Mail electronically reads the addresses on the envelopes, applies scanable bar-
Once Zip Mail receives metered, unsorted mail from its customers, it feeds the mail into a sorting device. This device scans the address listed on each piece of mail, compares each address with a database of some 85,000,000 different addresses to find an address match, and applies an eleven digit bar-code with an ink-jet printer that identifies a particular house or business in a given zip code. The bar-coded mail is then sorted by zip code into individual bins. The sorted mail is bundled and delivered to the USPS for verification, processing, and delivery.
From February 1991 through December 1995, Zip Mail purchased two sorting machines, four optical readers, two multi-line character readers, a meter machine, and various parts and software. After an audit, the Director assessed use tax of $30,-254.28 against Zip Mail on purchases totaling $716,077.50. In addition to the tax, the Director assessed $1,512.72 in additions and $15,402.70 in interest.
II.
In its first' allegation of error, Zip Mail claims that the AHC erred when it upheld the Director’s assessment of use tax against Zip Mail for the character readers, bar-code imprinters, scanners, and sorting machinery used in its business. This Court reviews the AHC’s interpretation of revenue laws de novo.
Machinery and equipment, and the materials and supplies solely required for the installation or construction of such machinery and equipment, purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state if such machinery and equipment is used directly in manufacturing, mining or fabricating a product which is intended to be sold ultimately for final use or consumption.
Through this exemption, property is exempted from use tax where it is “(1) used directly (2) in manufacturing (3) a product which is intended to be sold ultimately for final use or consumption (4) if the machinery or equipment was purchased (a) to replace existing equipment by reason of design or product changes or (b) to expand existing manufacturing.”
Zip Mail contends that its purchase of mailing machinery, including character readers, bar-code imprinters, scanners, and sorters, constitute machinery or equipment that enabled Zip Mail to expand its existing manufacturing. The AHC, how
Zip Mail next contends that the production of printed materials constitutes manufacturing.
We need not reach this argument, as its machinery generates neither a “sale of tangible personal property” nor a “taxable service” for final use or consumption.
Furthermore, notwithstanding this exception for computer output, the bar-codes do not constitute a product for final use or consumption as required by section 144.030.2(5). Zip Mail contends that the bar-code imprinted on each piece of mail brought to Zip Mail is a manufactured product for final consumption, because it enables USPS to process the encoded mail more efficiently and helps to expedite delivery. To support this contention, Zip Mail relies heavily on a case from the Minnesota Supreme Court.
The AHC distinguished the Zip Sort case from the case before us. Minnesota law defines a sale as (1) a transfer of title or (2) possession of tangible personal property for consideration.
III.
In its final point on appeal, Zip Mail contends that its purchases of equipment and machinery should be exempt from use tax under section 144.030.2(6). This section exempts from use tax personal property used exclusively in manufacturing, processing, modifying, or assembling products sold to the United States or any of its agencies.
Accordingly, the decision of the AHC is affirmed.
. L & R Egg Co. v. Director of Revenue, 796 S.W.2d 624, 625 (Mo. banc 1990).
. All statutory references are to RSMo 1994, unless otherwise noted.
. Concord Publishing House, Inc. v. Director of Revenue, 916 S.W.2d 186, 190 (Mo. banc 1996).
. Id.
. See Concord Publishing House, 916 S.W.2d at 195.
. The exhibits Zip Mail cites include copies of five bar-coded envelopes, two bar-code templates, and a silent videotape of Zip Mail’s operation. These objects in no way establish an increase in production capacity. Similarly, Zip Mail points to testimony given by its president. While his testimony did explain the purpose of each machine, he never addressed any potential increase in production capacity.
. Concord Publishing House merely holds that the physical plant need not be expanded to constitute expansion under section 144.030.2(5). Instead, evidence that the capacity to produce has increased is sufficient. No such evidence was presented ion this case.
. Heidelberg Central, Inc. v. Director of Revenue, 476 S.W.2d 502, 506 (Mo.1972); see also International Business Machines Corporation v. Director of Revenue, 958 S.W.2d 554, 557 (Mo. banc 1997) (noting that a “product” is an "output with market value”).
. Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331, 333 (Mo. banc 1996).
. Jackson Excavating Co. v. Admin. Hearing Comm., 646 S.W.2d48 (Mo.1983).
. West Lake Quarry & Material Co. v. Schaffner, 451 S.W.2d 140 (Mo.1970).
. Heidelberg Central, Inc. v. Director of Revenue, 476 S.W.2d 502, 506 (Mo.1972).
. Wilson & Co., Inc. v. Dept. of Revenue, 531 S.W.2d 752 (Mo.1976).
. See IBM Corp., 958 S.W.2d at 557 (holding that for purposes of section 144.030.2(5), the term "product” is defined as an output with market value, which includes both products and services).
. Id. at 558.
. See Zip Sort, Inc. v. Commissioner of Revenue, 567 N.W.2d 34 (Minn.1997).
. The capital equipment under the Minnesota statute was required to be used by the purchaser for manufacturing and other like uses.
. Minn.Stat. section 297A.01(3)(a).
. Zip Sort, 567 N.W.2d at 41.
. Zip Sort, 567 N,W.2d at 42 (quoting Fingerhut Prod. Co. v. Commissioner of Revenue, 258 N.W.2d 606, 609 (Minn.1977)) (Stringer, J., concurring in part and dissenting in part).
. See Section 144.030.2(6); 12 C.S.R. 10-3.262.
. See 12 C.S.R. 10-3.248(1).