The Mississippi Supreme Court released an opinion which upholds the audit findings of the Mississippi Department of Revenue (MDOR) and lower court decisions though the opinion does correct the review standard used by the Court of Appeals in Toolpushers Supply Co. v. Mississippi Department of Revenue.
Toolpushers Supply Co., a Wyoming based company with one Mississippi retail location, sells property related to energy exploration and production to oil and gas companies, such as casing, tubing, pumping units, and related products. The MDOR completed an audit for the periods April 1, 2013- June 30, 2016, and found some sales were considered exempt by the taxpayer though the items sold were consumables purchased for the use of the purchaser instead of for resale. MDOR assessed $124,728 in tax, penalties, and interest which Toolpushers appealed. Though Toolpushers did have resale certificates for the purchasers, the Board of Tax Appeals found that there was evidence that the items in question were being used and consumed by the purchasers and not resold, meaning sales tax should have been assessed. The Board of Tax Appeals upheld the audit findings, highlighting that Toolpushers did not apply the required “good faith” at the time of sale to accurately determine if they should charge sales tax. The Chancery Court reviewed the case de novo, as required under Mississippi Code Section 27-77-7 (Rev.2017) amended in 2015, and ultimately upheld the ruling of the Board of Tax Appeals, citing that Toolpushers had not met the burden of showing they were entitled to relief, which was appealed to the Court of Appeals. In their decision upholding the ruling of the Chancery Court, the Court of Appeals cited an obsolete, pre 2015 version of the discretionary standard established in Mississippi Code Section 27-77-7.
The Mississippi Supreme Court confirmed that the Court of Appeals decision states the incorrect discretionary standard had been cited by the Court of Appeals, but that alone would not require overturning the Chancery Court’s ruling, which the Mississippi Supreme Court also reviewed. The Mississippi Supreme Court points out that sales to businesses with Section 27-65-27 permits do not automatically qualify as wholesale sales; the law actually requires both the permit and that exemptions be made in “good faith” to retailers who resell the items in their regular line of business. Toolpushers maintained throughout that the presentation of a 27-65-27 permit was an “implied representation” of entitlement to make purchases without paying sales tax. However, the Mississippi code establishes requirements for both the permit and the “good faith” standard on every sale rather than a blank exemption for all purchases.
This case highlights the importance of technical details and individual state rules and requirements that taxpayers need to be aware of. Though Toolpushers felt they had collected the documentation required for wholesale sales in Mississippi, they overlooked the individual transaction requirements and misinterpreted how broadly exemption certificates could be applied. Taxpayers are required to know the applicable laws in the states where they do business and must endeavor to correctly apply exemptions or collect sales taxes as required by law.
(Opinion dated 2/22/2024, Maxwell, Justice Toolpushers Supply Co. v. Mississippi Department of Revenue, Case NO. 2021-CT-01186-SCT in the Mississippi Supreme Court, Randolph, C.J., Kitchens and King, P.JJ., Coleman, Beam, Chamberlin, Ishee, and Griffis, JJ, Concurring)