The Missouri Administrative Hearing Commission ruled1 that a Wal-Mart Stores, Inc. (“Walmart”) subsidiary was not liable for use tax on its purchase and use of information technology (IT) equipment.
Walmart Starco LLC (“Starco”), a Delaware limited liability company registered to do business in Missouri, is a wholly-owned subsidiary of Wal-Mart Stores East, LP (ELP), which is a wholly-owned subsidiary of Walmart. Starco and ELP were part of the worldwide WMT Group that owned and operated Walmart stores and Sam’s Clubs throughout the United States. During the periods at issue, Starco purchased IT equipment, including electronic price scanners, credit card readers, computers, and servers. Starco claimed a resale exemption on these purchases and provided vendors with a resale exemption certificate. This equipment was resold to the WMT Group stores, including a fixed-percentage markup and appropriate sales tax for the states where the stores were located. Some of these sales required additional processing, including loading software and testing equipment, which was performed solely in Starco’s warehouse in Pineville, Missouri. The equipment was shipped to stores and distribution centers by common carriers, where title passed to the purchasers at the point of delivery.
The Director of Revenue (“Director”) disallowed Starco’s claimed resale exemption pertaining to the purchases of equipment on which Starco loaded software or performed testing at its Missouri warehouse that was sold to purchasers outside Missouri. Starco filed a complaint appealing the Director’s decision assessing use tax and interest for the periods at issue.
The Director asserted that Starco’s purchase of IT equipment was subject to use tax because the extent of Starco’s use exceeds the bounds of control a taxpayer can exert over tangible personal property before a claimed resale exemption. Relying on Custom Hardware Engineering & Consulting, Inc. v. Director of Revenue,2 the Director claimed that Starco engaged in a taxable use of the equipment by installing software and testing. Starco did not dispute the use of the equipment but relied on the fact that the purpose of the purchase was to resell the equipment to the WMT Group. The court agreed with Starco that they were entitled to a resale exemption because to do otherwise would result in double taxation.
1 Walmart Starco LLC v. Director of Revenue (No. 19-1217).
2 358 S.W. 3d 54 (MO banc 2012).
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