Missouri Supreme Court Upholds Tax on Sales of Supplies Delivered to Towboats in Mississippi River

May 8th, 2014

The Missouri Supreme Court recently upheld Missouri's application of tax to sales of supplies delivered to towboats on the Mississippi River. It did not violate either the Commerce Clause or the Maritime Transportation Security Act (MTSA).

The taxpayer owned towboats that transported cargo from Minneapolis to New Orleans. The taxpayer purchased food and other supplies and had them delivered to the boats on the Mississippi River. The boats did not dock in Missouri but were in Missouri waters when they received the supplies. The taxpayer argued that the Commerce Clause and the MTSA barred Missouri from taxing these purchases.

A tax violates the Commerce Clause if, among other things, it is not fairly related to the services provided by the state. On this point, courts ask whether the state has given anything for which it can ask a return (i.e., a tax). Police and fire protection and the use of public roads and mass transit are examples of things that a state "gives" for which it may ask a return.

The taxpayer argued that the tax was not fairly related to services provided by Missouri. The Court ruled that the tax was fairly related to services that Missouri provided. Although the boats were on the Mississippi River, they were within Missouri. The taxpayer received the benefits of Missouri's law enforcement systems while in Missouri waters. The taxpayer also received the benefit of Missouri roads and docks that facilitated the deliveries. The tax did not violate the Commerce Clause.

In addition, the tax did not violate the MTSA. The MTSA bars states from taxing vessels that are operating in navigable waters subject to the authority of the United States. The Court ruled that the tax was not on the vessel: it was on the supplies. The taxpayer therefore had to pay Missouri sales and use taxes on its purchases.

http://www.courts.mo.gov/file.jsp?id=72973