The Supreme Court of Missouri found that Walmart Starco – an entity of Walmart – is exempt from use tax on its purchases of information technology equipment that it modified and subsequently sold to Walmart affiliates.
During the period in question, Starco was owned by a subsidiary of Walmart. Starco purchased equipment such as price scanners, credit card readers, computers and servers for resale to other Walmart subsidiaries. Those subsidiaries used the equipment to facilitate store operations. Starco claimed a resale exemption and did not remit Missouri use tax on the purchases of equipment.
Some of the equipment needed additional software or hardware to meet the subsidiaries’ specifications. Starco loaded the necessary software or hardware onto the equipment, tested it and packaged it for resale. Starco charged the cost of the equipment plus a fixed-percentage markup. The subsidiaries purchasing the equipment remitted use tax to the jurisdictions where the equipment was delivered.
Following an audit, the Missouri Director of Revenue (Director) assessed use tax, interest and additions against Starco for equipment purchased during the tax period in question, having determined that the purchases did not qualify for the resale exemption. A state Administrative Hearing Commission (Commission) subsequently determined that Starco did qualify for the resale exemption. The Director petitioned the Missouri Supreme Court for review.
The Director claimed that Starco’s installation of software and hardware, testing and repackaging for delivery shows that it did not hold equipment solely for resale. The Court found that this determination was incorrect. The Court referenced Missouri tax code which states that “a taxpayer qualifies for the use tax resale exemption if the taxpayer can show a subsequent transaction” that satisfies the definition of a sale. Starco exchanged ownership of the equipment for consideration. Therefore, the transactions qualified as a sale and consequently as a resale for purposes of the resale exemption.
The Commission had found that the subsidiaries purchasing the equipment had accrued and remitted use tax to the jurisdictions where the equipment was delivered and used. The Court stated that adopting the Director’s position and holding that the equipment was not exempt from use tax would result in prohibited double taxation by taxing the equipment when it was used and taxing it again when it was resold.
The Court found that the case on which the Director had relied (Custom Hardware Engineering & Consulting, Inc. v. Director of Revenue) in making its argument did not support the argument in this case as there were significant differences between the two cases. Unlike the Custom Hardware case, the facts in this case showed that Starco’s sole purpose for the equipment was to resell it. The Court affirmed the Commission’s decision finding that Starco qualifies for the resale exemption on the purchases of equipment. (Walmart Starco LLC v. Director of Revenue, Case No. SC99998, Supreme Court of Missouri, Opinion issued November 7, 2023)