Academic journal article Missouri Law Review

Is the Missouri Sales Tax Being Eroded? Examining a Conflict among the Executive, Legislative, and Judicial Branches in Missouri

Academic journal article Missouri Law Review

Is the Missouri Sales Tax Being Eroded? Examining a Conflict among the Executive, Legislative, and Judicial Branches in Missouri

Article excerpt

Miss Dianna's Sch. of Dance, Inc. v. Dir. of Revenue, 478 S.W.3d 405 (Mo. 2016)

I. INTRODUCTION

Miss Dianna's School of Dance, Inc. ("the School") teaches dance lessons and instructs students on various dance techniques. (1) The School has been in business for forty-three years. (2) In January of 2016, the Supreme Court of Missouri determined that it was a place of "amusement, entertainment, or recreation" (3) for purposes of section 144.020.1(2) of the Missouri Revised Statutes. (4) This resulted in the School owing a significant amount of unpaid taxes. (5) Over time, the State of Missouri has applied several different tests to determine whether businesses are considered places of "amusement, entertainment, or recreation" for purposes of the statute, which holds businesses liable for sales tax. (6) The two principle tests are the primary purpose test and the de minimis test, which are explored in greater detail in this Note.

This case and the legislative enactments that followed it raise more questions than they answer. While courts struggle to determine the proper scope of the statute, the legislative branch recently enacted an amendment excluding places of instruction from the scope of section 144.020. (7) Although Governor Jay W. Nixon vetoed this legislation, the legislature overrode the veto in September of 2016, and the amendment became law on October 14, 2016. (8)

This Note examines the Supreme Court of Missouri's holding in Miss Dianna's School of Dance, Inc. v. Director of Revenue, ascertains the holding's scope in light of recent statutory amendments, and explores whether Missouri sales tax is at a precipice going forward. Part II discusses the facts and holding of Miss Dianna's School of Dance. Part III explores the Supreme Court of Missouri's fluctuating interpretations of the statute. Part IV provides an indepth analysis of the Supreme Court of Missouri's reasoning in Miss Dianna's School of Dance and its relevance to the interpretation of the statute going forward, including an examination of Judge George W. Draper III's dissent. Finally, Part V discusses the effect of recent statutory amendments, both on Miss Dianna's School of Dance and on future cases involving amusement, entertainment, and recreation. This Note argues that both the court's decision in Miss Dianna's School of Dance and the subsequent statutory amendments to section 144.020 leave businesses in a more difficult position regarding whether to impose sales tax. Ultimately, this Note concludes that the future of the Missouri sales tax remains in doubt because of the ambiguity of the statutory enactment.

II. FACTS AND HOLDING

The School, located in Kansas City, Missouri, offers dance classes in tap, ballet, jazz, acrobats, lyrical, hip-hop, and pom-pon for all ages. (9) Prior to being audited in 2012, the School did not file any sales tax returns because it does not sell retail merchandise. (10) Rather, it relied on a 2008 Missouri Department of Revenue letter ruling, addressed to a different business, (11) stating that fees charged by that business for dance lessons were not subject to sales tax. (12) However, the Director of Revenue determined that the School owed $73,276.21 in unpaid taxes and interest. (13)

Section 144.020.1(2) of the Missouri Revised Statutes imposes a sales tax "equivalent to four percent of the amount paid for admission and seating accommodations, or fees paid to, or in any place of amusement, entertainment or recreation, games and athletic events." (14) The School argued that it was not a place of amusement, entertainment, or recreation because its main purpose was to teach students how to dance and that, therefore, the tax should not apply. (15)

Although the School's website portrayed that the classes involved skill, learning, and technique, it also included various statements emphasizing the fun and enjoyment that the classes offered. (16) The website stated, "We are confident you can find a class that will make you and your family happy! …

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