Missouri ~ Sales and Use Tax: Out-of-State Telecommunications Company Failed to Qualify for “In Commerce” Exemption

CCH Tax Day Report

The Missouri Supreme Court held that an out-of-state telecommunications company was not entitled to a refund of the difference between the Missouri sales tax it paid on its sales to Missouri residents and the use tax it believed it should have paid because it did not qualify for the “in commerce” sales tax exemption in §144.030.1, RSMo. The taxpayer operated a telecommunications business with its headquarters in Florida, but owned no telecommunication facilities, such as cell towers. Instead, the taxpayer contracted with several telecommunications carries in Missouri to buy access to their telecommunication facilities and services. It then sold prepaid access to what it called its “virtual network,” which was actually the networks of the contracted carriers, in packages consisting of either a set number of minutes or unlimited minutes for a set period of time. The taxpayer referred to these packages as “Airtime.” The taxpayer’s services could only be accessed through use of its handsets, which the taxpayer also sold to its customers. All orders were taken in and all payments made to the taxpayer’s Florida office. The taxpayer had no warehouse or other facilities in Missouri, so handsets were shipped to Missouri customers from outside the state. The burden was on the taxpayer to prove that it qualified for the exemption. To determine whether a particular retail sale qualified for the “in commerce” exemption, the court looks to the true object of the transaction. Here, the court held that the true object of the transaction was the taxpayer’s sale of access to telecommunications services in Missouri, not the sale of tangible personal property in commerce between states. The taxpayer’s sales of equipment (handsets) and “Airtime” were merely incidental to the sale of access to those services in Missouri. As the taxpayer failed to meet its burden of showing that the “in commerce” exemption applied, the denial of the refund was upheld.

TracFone Wireless, Inc. v. Director of Revenue, Missouri Supreme Court, No. SC95785, February 14, 2017, ¶204-102

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