Missouri Private Jail Liable for Tax Due on Purchases of Consumables Provided to Inmates

In a Missouri court case, a private jail operator’s purchases of consumables (soap, meals and clothing) that were provided to inmates pursuant to contracts with municipalities were found taxable. The court found that in order to be eligible for the resale exemption the items purchased by the taxpayer had to subsequently be subject to a taxable sale at retail. The taxpayer argued that its purchases were eligible for the resale exemption because it purchased those products for resale to the municipalities that sent inmates to its jail facility. However, since the tax-exempt governmental entities were not required to pay sales tax on the consumable goods, an exemption from sales tax was not allowed. In addition, the taxpayer did not meet the statutory definition of a “seller,” which also precluded it from the resale exemption. As a result of this court decision, the Missouri Department of Revenue has proposed an interpretation to implement this decision. At this time, it is unclear whether this interpretation will become a rule. This decision raises significant issues for all Missouri taxpayers who purchase items for resale, including raw materials, if they make sales to exempt customers. (ICC Management, Inc. v. Director of Revenue, Missouri Supreme Court, No. SC89559, June 16, 2009)

Posted on November 8, 2009