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Missouri Private Jail Assessed Back Sales and Use Taxes

The En Banc Missouri Supreme Court held that a private jail must pay $14,056.25 in sales tax and $5,459.79 in use tax, plus interest, on its purchase of prisoner meals, clothing, soap, shampoo, medical supplies and other consumables between 2000 and 2005.

ICC Management Inc. is a private for-profit corporation operating a private jail near Holden, Missouri. It contracts with several Missouri municipalities and counties to house prisoners.

Pursuant to contracts with those government entities, ICC was paid a per-prisoner fee ranging between $32.50 and $50 for ICC to provide prisoners "with consumable items including three meals per day, clothing, soap, shampoo and medical supplies."

Governmental entities are exempt from paying sales tax, so ICC does not, and cannot, charge contracting agencies a sales tax on the consumables it provides prisoners. However, it does factor the cost of those items into the fee it charges the entities, "and, therefore, 'resells' those consumables to the municipalities." As a result, ICC claims that it is entitled to claim a resale exemption from sales and use tax on its consumable purchases.

Based upon this position, ICC did not pay sales or use taxes on consumables it purchased from in-state vendors between January 2000 and December 2005. Following a sales tax audit of ICC, the Missouri director of revenue "concluded that ICC is liable for Missouri sales or use tax on its purchases of inmate consumables and assessed deficiencies of $14,056.25 in sales tax and $5,459.79 in use tax, plus interest, on ICC's purchases of food, clothing and other consumables during the audit periods."

The Administrative Hearing Commission affirmed the director's tax assessment, "holding that the resale exclusion is not applicable because it requires a taxable sale at retail."

The Missouri Supreme Court affirmed. "ICC's supply of the food and other consumables to the inmates will not be taxed due to the application of the governmental sales exemption," the Court held. "This disqualifies ICC from claiming the resale exemption, because the rationale for that exemption – the avoidance of double taxation – does not apply." See: ICC Management, Inc v. Director of Revenue, 290 S.W.3d 699 (Mo. 2009) (en banc).

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Related legal case

ICC Management, Inc v. Director of Revenue