All Star Amusement, Inc. v. Director of Revenue

COVINGTON, Chief Justice. All Star Amusement, Inc., appellant, sells cigarettes, food, and beverages in the Kansas City metropolitan area. The Director of Revenue audited All Star and assessed sales and use tax, interest, and additions. All Star appealed the assessment to the Administrative Hearing Commission (AHC). At the hearing, All Star presented several signed exemption certificates that were undated or dated after alleged exempt sales had occurred. The AHC held, as a matter of law, that All Star had not received the exemption certificates in good faith; therefore, it was not shielded from sales tax liability under § 32.200, art. V, § 2, RSMo 1986. The Missouri Court of Appeals, Western District, transferred the case because this Court has exclusive appellate jurisdiction in cases involving construction of Missouri’s revenue laws. Mo. Const, art. V, §§ 3 and 11. Reversed and remanded. The facts recited are those relevant to the issue that invokes this Court’s original appellate jurisdiction. All Star Amusement, Inc., was incorporated in Missouri in 1981. It does business as Kansas City Automated Food Service in the Kansas City metropolitan area. All Star owns and derives receipts from coin-operated cigarette, snack, and soda vending machines. All Star purchased goods suitable for vending in large quantities at favorable prices. It sold some of the goods at retail in its vending machines and sold the remainder at retail and wholesale directly to various buyers. All Star filed no sales tax returns until June 1987. The Director of Revenue conducted a sales and use tax audit for the period January 1, 1985, through December 31, 1989. The director commenced the audit in August 1987, but discontinued it because of inadequate records and insufficient cooperation. The director recommenced the audit in November 1989, and concluded it in November 1990. As a consequence of inadequate record keeping, the director approximated gross receipts [844] based upon available evidence. The director assessed sales and use tax, interest, and additions. All Star appealed the director’s tax assessment to the AHC. At the administrative hearing, All Star produced signed exemption certificates and exemption letters from several of its purchasers. Some of the exemption certificates were not dated and some were dated after alleged exempt sales had occurred. The AHC held, as a matter of law, that the phrase “good faith” in § 32.200, art. V, § 2, requires sellers to receive exemption certificates contemporaneously with the sale, and that exemption certificates be dated. Accordingly, the AHC refused to. find exempt any sales made to buyers that had given undated exemption certificates. For the dated exemption certificates, the AHC found exempt only those sales that occurred in the month a certificate was dated and those that occurred thereafter. On appeal from the AHC, All Star raises three points, the second of which is disposi-tive for purposes of this Court’s original appellate jurisdiction: the AHC misinterprets the good faith requirement of § 32.200. The dispositive issue is a question of law, not fact. In Gammaitoni v. Director of Revenue, 786 S.W.2d 126 (Mo. banc 1990), and Conagra Poultry Co. v. Director of Revenue, 862 S.W.2d 915 (Mo. banc 1993), this Court addressed the good faith requirement of § 82.200. In both cases we affirmed the AHC’s holding that the appellant’s sales were not exempt. This Court then addressed the issue of whether the appellants were nonetheless shielded from sales tax liability under § 32.200 by reason of having received exemption certificates in good faith. In both, we upheld the AHC’s factual finding that the appellants had not accepted the exemption certificates in good faith because the findings were supported by substantial evidence upon the record as a whole. Unlike the factual determinations under review in Gammaitoni and Conagra, the Commission’s conclusion of law is at issue here. This Court will exercise its independent judgment in correcting errors of law. Sneary v. Director of Revenue, 865 S.W.2d 342, 344 (Mo. banc 1993). Under Missouri’s sales tax statute, sellers must collect and remit sales tax on all sales of tangible personal property unless the transaction or purchaser is exempt. §§ 144.-020, 144.030, 144.080, RSMo 1986 & RSMo Supp.1993. Section 32.200, art. V, § 2, RSMo 1986, part of the Multistate Tax Compact adopted by Missouri, offers sellers a safe harbor that provides absolute relief from sales tax liability irrespective of whether the underlying transaction qualified for an exemption. It states: Whenever a vendor receives and accepts in good faith from a purchaser a resale or other exemption certificate or other written evidence of exemption authorized by the appropriate state or subdivision taxing authority, the vendor shall be relieved of liability for a sales or use tax with respect to the transaction. Id. (emphasis added).1 In Conagra, this Court stated that the phrase “good faith” is generally understood [845] to “convey the sense of ‘[hjonesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry.’ ” Conagra, 862 S.W.2d at 918 (citing Black’s Law Dictionary 193 (6th ed. 1990)). Consistent with the definition set forth in Conagra, good faith receipt of an exemption certificate requires that a seller honestly believe that the buyer is exempt from paying the sales tax. Good faith belief may rest solely upon the representations made by the buyer in the exemption certificate,2 as such reliance fulfills the function of exemption certificates. See Conagra, 862 S.W.2d at 918 (“Exemption certificates, received and accepted in good faith, protect sellers, who may know little or nothing about the facts upon which an exemption is claimed, from the obligation to investigate all buyers who may claim exemption because of their status or because of the intended use for purchases.”). If a seller possesses information or has knowledge that should raise doubts regarding the buyer’s claimed exemption, however, or suspects the genuineness of an exemption certificate, the seller must investigate to the point that it is honestly convinced that the buyer or the transaction is exempt. Under the reasoning of Conagra, and contrary to the holding of the AHC, there is no absolute requirement, as a matter of law, that a seller receive an exemption certificate contemporaneously with a sale or that the certificate be dated so as to fulfill the good faith component of § 32.200.3 A seller may, in certain circumstances, receive an exemption certificate in the good faith belief that the buyer is exempt from the sales tax where the certificate is not received contemporaneously with the sale or where the certificate is not dated. A post-transaction exemption certificate or one that is not dated may, however, influence a factual finding on the issue of a seller’s good faith. The decision is reversed and the case is remanded to the AHC for factual determinations on whether All Star accepted the exemption certificates in good faith. Even if the AHC finds that Ml Star accepted some of [846] the disputed exemption certificates in good faith, All Star must still demonstrate which sales were made to the exempt companies. All Star may find this burden difficult as a consequence of its inadequate record keeping, which required the director to approximate gross receipts. The issue that vested jurisdiction in this Court having been resolved, appellant’s remaining points on appeal may properly be presented to the court of appeals after the commission makes its factual determinations on remand. The decision is reversed and the cause remanded. HOLSTEIN, THOMAS, PRICE, LIMBAUGH and ROBERTSON, JJ., concur. JOSEPH M. ELLIS, Special Judge, concurs in part and dissents in part in separate opinion filed. BENTON, J., not sitting. Footnotes [1] The separate opinion would hold that § 32.200, art. V, § 2, does not apply to the case sub judice because an interstate tax conflict does not exist to trigger its application. The separate opinion raises the issue, argues it, and decides it. Neither party raised, argued, or briefed the issue to the AHC or to this Court. The AHC did not address the issue in its decision. The appellate process best serves its purpose when it resolves legal disputes after the parties have presented opposing arguments. Relevant considerations on both sides of an issue, considerations that may otherwise be overlooked, are best raised by adversarial arguments of parties whose interests are at stake. This is especially true where the issue involved is complex. For example, the Court notes that strong arguments can be made against the view expressed in the separate opinion. Section 32.200, art. V, § 2, is a Missouri statute. It was adopted by the Missouri legislature under procedures set forth in the Missouri Constitution. The section carries the same weight as any other constitutionally enacted statute. The section is unambiguous. Neither § 32.200, art. V, § 2, nor the "Purposes” section in § 32.200, art. I, states that the safe harbor applies only where an interstate tax dispute occurs. Courts need not look to history to divine a statute's purpose or intention where a clear statutory mandate exists, nor should a statutory purpose act to override clear statutory language. Finally, this Court has twice stated that § 32.200, art. V, § 2, has legal effect in cases where no interstate tax dispute existed. See Con845 agra Poultry Co. v. Director of Revenue, 862 S.W.2d 915 (Mo. banc 1993); Gammaitoni v. Director of Revenue, 786 S.W.2d 126, 131 (Mo. banc 1990). Gammaitoni was decided over four years ago. During that time taxpayers have relied on the safe harbor and the legislature has chosen not to override the holding with contrary legislation. This Court in its discretion declines to assume the roles and respective responsibilities of the parties to raise the issue and develop arguments. Although we could require that the parties submit briefs on the issue and reargue before this Court, we see no benefit in such action because even the Department of Revenue, the party more likely to dispute application of § 32.200, takes the position that § 32.200, art. V, § 2, has application in cases such as this one. This Court will address the controversy when it is properly brought before the Court. Perhaps a future litigant will advance the issue raised by the separate opinion. At that time, after full briefing and argument by the parties, this Court will be better situated to decide the issue. [2] Resale exemption certificates contain the following representations: I certify that [name and address of purchaser] is registered with the below listed states and cities within which your firm would deliver purchases to us and that any such purchases are for wholesale, resale, ingredients or components of a new product to be resold, leased, or rented in the normal course of our business. We are in the business of wholesaling, retailing, manufacturing, leasing, or renting. [[Image here]] I further certify that if any property so purchased tax free is used or consumed by the firm as to make it subject to a Sales or Use Tax we will pay the tax due direct to the proper taxing authority when state law so provides or inform the seller for added tax billing. This certificate shall be part of each order which we may hereafter give to you, unless otherwise specified, and shall be valid until cancelled by us in writing or revoked by the city or state. [3] The AHC held that good faith under § 32.200 requires exemption certificates to be "regular on their face,” meaning, inter alia, that the certificate must be dated. The AHC appears to have reached this conclusion relying on Judge Black-mar's dissenting opinion in Van Cleave Printing Co. v. Director of Revenue, 784 S.W.2d 794, 796 (Mo. banc 1990) (Blackmar, J., dissenting) ("If the seller possesses exemption certificates which are regular on their face, then challenges to the exemption must be made against the buyer.”), and § 144.210, RSMo 1986, which contains an independent provision that requires buyers to sign exemption certificates. Section 144.210 does not require exemption certificates to be dated. As for Judge Blackmar’s dissent in Van Cleave, even if authoritative, it should not be read to mean that an exemption certificate that is "irregular on its face” automatically evidences a lack of good faith.