Ronnoco Coffee Co. v. Director of Revenue

MICHAEL A. WOLFF, Chief Justice,

dissenting.

I would reverse the decision of the Administrative Hearing Commission and hold that purchases of equipment by the coffee companies are subject to the use and sales tax. The use of the equipment in this instance constituted a lease; therefore, the resale exemption does not apply.

The AHC determined that the transactions between the coffee companies and their customers were loans, not leases, and that section 144.020.1(8) did not apply because the coffee companies “did not have a stated charge for [their] customers’ use of the equipment.” That determination was wrong on both counts.

“Lease” is not defined in the tax statutes, but it is defined in Missouri’s Uniform Commercial Code as “a transfer of the right to possession and use of goods for a term in return for consideration ... ”. Section 400.2A-103(l)(j), RSMo Supp. 2005.1 Although this definition is found in *682the commercial code, when the legislature enacts a statute using terms that are defined elsewhere in Missouri statutes, the legislature is presumed to have knowledge of those other definitions. Citizens Elec. Corp. v. Director of Dept. of Revenue, 766 S.W.2d 450, 452 (Mo. banc 1989). This definition is substantially the same as the dictionary definition: “a contract by which one conveys [property] for life [or] for a term ... usually for a specified rent or compensation.” Webster’s Third New International Dictionary (1993). Words that are not defined in a statute are given their ordinary meaning according to the dictionary. Asbury v. Lombardi, 846 S.W.2d 196, 201 (Mo. banc 1993).

Whichever definition of “lease” is used, it is clearly satisfied by the contracts here. The contracts provide that the coffee companies retain ownership of the equipment and that the customer has the right to possess and use the equipment, but only for the purposes set by the coffee companies. The term is that time period during which the customer continues to purchase coffee and tea from the coffee companies. The consideration is the additional money paid by the customer in order to use the equipment.

The AHC’s determination that these arrangements are not leases because there is no “stated charge” is contradicted by the coffee companies’ admission that the cost of the equipment is “factored into” the cost of the coffee they sell their customers. The coffee companies add a set amount to the cost of the contract to cover the cost of the equipment used by the customer. As a result, purchase of coffee alone costs less than purchase of coffee and lease of equipment to use with the coffee, and the loan of a more expensive machine costs more than the loan of a less expensive machine. While not separated out for payment, the agreement clearly includes a stated charge for the lease of the equipment used to make or grind the coffee — that charge is the difference between the cost of purchase of the coffee alone and purchase of the coffee plus the lease of the machines.

The transactions satisfy the definition of “lease.” Leases of equipment are subject to tax under section 144.020.1(8), RSMo Supp.2005, which states:

1. A tax is hereby levied and imposed upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state ... as follows:
(8) A tax equivalent to four percent of the amount paid or charged for rental or lease of tangible personal property, provided that if the lessor or renter of any tangible personal property had previously purchased the property under the conditions of “sale at retail” ... or leased or rented the property and the tax was paid at the time of purchase, lease, or rental, the lessor, sublessor, renter, or subrenter shall not apply or collect the tax on the subsequent lease, sublease, rental or subrental receipts from that property.

The issue is made more complex by the language of section 144.605(7), which includes “leases” in the definition of “sale,” and section 144.615(6), RSMo Supp.2005, which exempts property held “solely for resale” from taxation. A “resale” requires three elements: (1) a transfer, barter, or exchange; (2) of title to or the right to use tangible personal property; (3) for consideration. Aladdin’s Castle, Inc. v. Director of Revenue, 916 S.W.2d 196, 198 (Mo. banc 1996). Read in isolation, this would suggest that a lease should not be taxed if it is considered a “resale.”

The majority opinion does not address the inherent contradiction between the legislature’s adoption of a specific provision *683taxing leases, section 144.020.1(8), and its adoption of a definition of “sale” that can include leases. Section 144.605(7). But, all statutory provisions are to be given some meaning, and it is assumed that the legislature would not enact a meaningless statute. Wollard v. City of Kansas City, 831 S.W.2d 200, 203 (Mo. banc 1992). Further, laws are to be interpreted in pan materia in order to determine their meaning. State ex rel. Rothermich v. Gallagher, 816 S.W.2d 194, 200 (Mo. banc 1991). Under this doctrine, statutes involving related subject matter are construed together as though constituting one consistent act, even if adopted at different times. Id.

Since the provision taxing leases must mean something, the rules of statutory construction serve as a guide to its meaning. The primary rule of statutory construction is to give effect to the intent of the legislature. Spradlin v. City of Fulton, 982 S.W.2d 255, 258 (Mo. banc 1998). Where general terms in one part of a statute are inconsistent with specific terms in another part, the specific terms are controlling, “unless the statute as a whole clearly shows the contrary intention.” Terminal R.R. Ass’n of St. Louis v. City of Brentwood, 360 Mo. 777, 230 S.W.2d 768, 769 (1950).

Prior cases indicate the legislative intent in adding the lease provision to the statute. In International Bus. Mach. Corp. v. State Tax Comm’n, 362 S.W.2d 635 (Mo.1962), the State argued that the lease of equipment constituted a transfer of ownership and was a “sale at retail.” This Court disagreed and held that leases were not included in that term: “had the legislature desired or intended to impose a sales tax on any and all lease transactions it would have been a very simple matter to plainly manifest that purpose by express provision in the act.” Id. at 639. That decision was followed in Federhofer, Inc. v. Morris, 364 S.W.2d 524, 527 (Mo.1963), where the Court again held that a lease was not taxable under the “sale at retail” provision of section 144.020, RSMo 1959.

In 1963, the legislature accepted the invitation of International Bus. Mach, and added section 144.020.1(8), which imposed a tax on “the amount paid or charged for rental or lease of tangible personal property.” This Court subsequently held that this provision required a general tax to be imposed on all leases. International Bus. Mach. Corp. v. David, 408 S.W.2d 833, 837 (Mo. banc 1966) overruled on other grounds by Southwestern Bell Yellow Pages, Inc. v. Director of Revenue, 94 S.W.3d 388 (Mo. banc 2002).

Following the rules of statutory interpretation, the legislature’s intent is first ascertained. It appears that the purpose of the 1963 amendment was to tax leases of tangible personal property, such as the coffee equipment at issue in this case. The lease provision is more specific, when applied to this case, than is the “resale” provision; this also weighs in favor of finding these transactions to be taxable as leases. Finally, the resale provision is an exemption, which must be construed strictly against the taxpayer. Branson Properties USA, L.P. v. Dir. of Revenue, 110 S.W.3d 824, 825 (Mo. banc 2003). Since every provision of the statute must have a meaning, the proper interpretation of the lease provision in section 144.020.1(8) is that true leases are meant to be taxed. This is consistent with the principles of statutory construction, with the legislative history relating to the addition of the lease provision to the statute, and with the principle that exemptions are to be construed against the taxpayer.

This position is consistent with prior cases where leases were found to be taxable. This is not inconsistent with our prior “factoring in” cases relied on by the *684coffee companies. Nearly all of those cases dealt with whether a lease tax should be imposed where an item was given to the customer to use and keep. See, e.g., Kansas City Power and Light Co. v. Director of Revenue, 83 S.W.3d 548 (Mo. banc 2002) (electricity sold to hotel guests); Sipco, Inc. v. Director of Revenue, 875 S.W.2d 539 (Mo. banc 1994) (dry ice used in packaging meat shipments). These cases are factually distinguishable, in that they do not involve true leases, for the item is not being returned and no separate charge is made.

By contrast, here, the coffee equipment is being returned, and the extra cost for it is separately determined, and if it is not used, then the charge for it is not included in the contract price. Here, unlike in the factoring in cases, the equipment is truly being leased.

The two lease cases relied on by the coffee companies are Weather Guard, Inc. v. Director of Revenue, 746 S.W.2d 657 (Mo.App.1988), and Brambles Industries, Inc. v. Director of Revenue, 981 S.W.2d 568 (Mo. banc 1998). Weather Guard provided insulation and machines to retailers. The machines allowed consumers to install the insulation themselves. The retailers sold the insulation along with a license for use of the machine. The cost of renting the machine was included in the insulation purchase. The retailers signed agreements with Weather Guard that were similar to the agreements in this case. Weather Guard maintained ownership of the machines, and the retailers agreed to sell only Weather Guard insulation. The issue in the case was whether the machines were subject to taxation as leases or exempt as resales. The court of appeals interpreted the resale provision as applying to the machines; thus, their rental to the retailers was not subject to tax. Id. at 658. This Court is the only one that can construe the state revenue laws. Mo. Const, art. V, § 3. The court of appeals can merely apply settled law. In Weather Guard, the court of appeals went beyond prior case law in construing the statute to apply to that situation. It had no authority to do so, and that case should not be followed here.

The other case supporting the coffee companies’ position, Brambles, fails to acknowledge the existence of section 144.615(6), much less resolve the conflict between it and section 144.020.1(8). Thus, it too is not helpful. To the extent that Weather Guard and Brambles can be read to address the situation presented by this case, however, they should not be followed.

This case and many other recent cases serve as a reminder of the piecemeal condition of the state’s sales tax law. The law was created decades before the creation of the modern economy of goods and services, marketed in ever new and interesting ways. The law has been riddled with exceptions and exemptions over the years. Its holes have occasionally been patched, as with the addition of leases in 1963, as discussed above. What is left is a law that is incoherent, dysfunctional, and not particularly helped by this Court’s efforts at interpretation over the years.

I respectfully dissent from today’s interpretation.

. All statutory references are to RSMo 2000, unless otherwise noted.