              SUPREME COURT OF MISSOURI
                       en banc


COMMERCIAL BARGE LINE COMPANY,                         )
and AMERICAN COMMERCIAL BARGE                          )
LINE, LLC, N/K/A AMERICAN COMMERCIAL                   )
LINES, LLC,                                            )
                                                       )
      Appellants,                                      )
                                                       )
v.                                                     )      No. SC93448
                                                       )
DIRECTOR OF REVENUE,                                   )
                                                       )
      Respondent.                                      )


PETITION FOR REVIEW OF A DECISION OF THE ADMINISTRATIVE HEARING
                             COMMISSION
               The Honorable Karen A. Winn, Commissioner

                             Opinion issued April 29, 2014

      Commercial Barge Line (CBL) and American Commercial Barge Line (ACBL)

(collectively referred to as Taxpayers) seek review of the Administrative Hearing

Commission’s (AHC) determination that they owed Missouri sales and use tax on goods

and supplies delivered to ACBL’s towboats while the towboats traveled south on the

Mississippi River. Taxpayers contend the assessments violated the Commerce Clause

because they are not fairly related to any services Missouri provides Taxpayers. They

also claim that the taxes violate the Maritime Transportation Security Act, 33 U.S.C.
§ 5(b) (2006), which prohibits non-federal entities from assessing taxes on vessels in

navigable waters of the United States. They further argue that the three-year statute of

limitations in sections 144.220 and 144.720 1 bars the Department of Revenue (DOR)

from assessing any additional tax liability for the audit period, October 1, 2001, through

December 31, 2006.

              This Court finds that the sales and use taxes were imposed on supplies purchased

or used while in Missouri and did not violate the Commerce Clause as they were fairly

related to the services the Taxpayers received from the state. 2 Further, the taxes did not

violate the Maritime Transportation Security Act because they were assessed on ACBL’s

purchases and deliveries of supplies, not on the towboats themselves. Last, because

Taxpayers did not file any sales or use tax returns during the audit period, DOR was not

barred from assessing tax liability for the audit period as section 144.220 provides no

statute of limitations when the taxpayer does not file a return. The AHC’s decision is

affirmed.

                                                               Factual Background

              CBL is a Delaware corporation and the single member of two limited liability

companies: ACBL and Louisiana Dock Company. 3 ACBL operates line-haul towboats

that transport cargo along the Mississippi River from Minneapolis to New Orleans.

                                                            
1
  All references are to RSMo 2000.
2
  This Court has exclusive jurisdiction as this case involves the validity of a state statute and the
construction of state revenue laws. Mo. Const. art. V, sec. 3.
3
  Prior to 2005, Danielson Holding Company was the parent corporation of ACBL and Louisiana
Dock. After it reorganized in bankruptcy in January 2005, CBL became their parent company.
CBL is also connected to several other entities that are not relevant to this case and, therefore,
are not discussed.
Louisiana Dock, in turn, provides various goods and services to ACBL, including selling

and delivering supplies to ACBL’s towboats and storing supplies purchased from third-

party vendors until they are ready to be delivered.

              Neither CBL nor ACBL is registered to do business in Missouri and neither has

offices or employees located in Missouri. Louisiana Dock is registered to do business in

Missouri and has both property and employees in St. Louis. ACBL and Louisiana Dock

are considered disregarded entities of CBL for both federal and Missouri tax purposes

because they are limited liability companies and CBL is the only member of each

company. 4 However, Louisiana Dock registered in Missouri to pay sales and use tax

under its own name, as opposed to using CBL’s name, to avoid confusion with vendors.

Taxpayers did not file any sales or use tax returns in Missouri during the audit period.

              DOR audited CBL, ACBL, Louisiana Dock and other affiliated companies in

2007. At issue is Taxpayers’ tax liability in two types of transactions: (1) sales tax for

ACBL’s purchase of food and other supplies from Louisiana Dock and (2) use tax for

ACBL’s purchases from third-party vendors who either delivered the supplies directly to

the ACBL towboats or used Louisiana Dock to deliver the supplies. For each type of

transaction, ACBL used the supplies exclusively on the towboats because the boats did

not dock while in Missouri.


                                                            
4
  A disregarded entity is a term used in the federal treasury regulations. It means that, for federal
tax purposes, ACBL’s and Louisiana Dock’s federal taxable income is included in and reported
by CBL. See I.R.C. § 7701; Treas. Reg. § 301.7701-3. Further, Missouri statutes provide that,
for sales and use tax purposes, “a limited liability company and its members shall be classified
and treated on a basis consistent with the limited liability company’s classification for federal
income tax purposes.” Section 347.187.2.
                                                               3
 
    In the first category of transactions, Louisiana Dock purchased supplies from vendors

to resell to ACBL. Louisiana Dock did not pay sales tax on these supplies because it

claimed the resale exemption. When it resold the supplies to ACBL, ACBL also did not

pay sales tax on the supplies. Instead, ACBL claimed the “in-commerce” exemption,

using a certificate that said, “Delivers [sic] were not made in the State of Missouri and

the purchases were not used in the State of Missouri.”

       For the second category of transactions, ACBL purchased supplies from third-

party vendors located in Kentucky and Illinois. In some instances, the third-party

vendors shipped the supplies to Louisiana Dock, which stored them in its facility in St.

Louis. Louisiana Dock then delivered the supplies to ACBL’s towboats while they were

on the Mississippi River. ACBL paid Louisiana Dock a flat hourly rate for all of the

services it provided, including making deliveries. In other instances, the Illinois vendor

delivered the supplies directly to ACBL’s towboats on the Mississippi River. The vendor

charged Illinois sales tax on all supplies it delivered to northbound boats, but not on

deliveries to southbound boats. ACBL did not pay any Missouri taxes on the supplies

purchased from the third-party vendors. Instead, it provided “exemption certificates,”

which stated, “Title does not pass to ACBL until the supplies have been delivered to the

towboat which is always outside the State of Missouri.”

       DOR’s audit determined that the certificates ACBL issued to Louisiana Dock and

the third-party vendors were issued in bad faith and assessed sales and use taxes pursuant

to sections 144.020 and 144.610. For the supplies ACBL purchased from Louisiana

Dock, DOR found the Taxpayers liable for $12,893.57 in sales tax and related interest

                                              4
 
and penalties. For the supplies purchased from third-party vendors, DOR found the

Taxpayers liable for $107,775.09 in use tax and related interest and penalties.

              Taxpayers sought review of these assessments before the AHC. The AHC

concluded that the sales and use tax assessments did not violate the Commerce Clause

because the supplies were either purchased or used within Missouri and the benefits

Missouri provided to Taxpayers were fairly related to the taxes assessed. It further

concluded that because the sales and use taxes were assessed on tangible personal

property either purchased or used in Missouri, and not on the privilege of using the river

or on the towboats, they did not violate the Maritime Transportation Security Act.

Lastly, it determined that DOR’s claims were not barred by the statute of limitations

because Taxpayers failed to file sales and use tax returns during the audit period.

              The AHC determined the proper assessment was $53,610.33 in use tax on the

third-party vendor transactions and $4,904.82 in sales tax on transactions with Louisiana

Dock. These amounts reflected the tax owed on approximately half of all of ACBL’s

transactions to represent the times ACBL’s towboats traveled southbound on the

Mississippi River in Missouri. 5 It then upheld DOR’s assessment of interest and a five

percent addition as a penalty. Sections 144.170; 144.250; 144.665; 144.720. Taxpayers

appeal.

                                                            
5
  Neither party presented evidence regarding what proportion of the relevant transactions took
place on the Missouri side of the Mississippi River. In the absence of such evidence, the AHC
approximated that the towboats spend 50 percent of their time traveling southbound and,
therefore, in Missouri. See Kansas City Power & Light Co. v. Dir. of Revenue, 83 S.W.3d 548,
553 (Mo. banc 2002) (“where evidence is not sufficient to allow for a precise calculation of the
amount of tax, then the [AHC] shall make as close an approximation as it can.” (internal
quotation omitted)). Neither party contests this approximation.
                                                               5
 
                          Jurisdiction and Standard of Review

       This Court has exclusive jurisdiction in all cases involving the validity of a state

statute and the construction of state revenue laws. Mo. Const. art. V, sec. 3. The AHC’s

decision will be affirmed if: (1) it is authorized by law; (2) it is supported by competent

and substantial evidence on the whole record; (3) it does not violate mandatory

procedural safeguards; and (4) it is not clearly contrary to the reasonable expectations of

the General Assembly. Section 621.193; see Loren Cook Co. v. Dir. of Revenue, 414

S.W.3d 451, 453 (Mo. banc 2013). This Court reviews the AHC’s interpretation of the

law de novo. Loren Cook Co., 414 S.W.3d at 453.

                Tax Assessments Did Not Violate the Commerce Clause

       Taxpayers first argue that they cannot be subjected to sales or use tax under the

Commerce Clause, which gives Congress the power to “regulate Commerce . . . among

the several States.” U.S. Const. art I, § 8, cl. 3. While the Commerce Clause prevents

states from discriminating against interstate commerce, “it was not the purpose of the

commerce clause to relieve those engaged in interstate commerce from their just share of

state tax burden.” Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). For a

tax to survive a challenge under the Commerce Clause, it must satisfy the four criteria

outlined in Complete Auto: the tax (1) is applied to an activity with a substantial nexus

with the taxing state; (2) is fairly apportioned; (3) does not discriminate against interstate

commerce; and (4) is fairly related to the services provided by the state. Id.

       Here, Taxpayers do not contest that the sales and use taxes assessed against them

meet the first three prongs of the Complete Auto test. Rather, they suggest that the taxes

                                              6
 
were not fairly related to the services Missouri provided because their boats did not

receive any direct services from the state. A tax will satisfy this prong so long as the

“incidence of the tax as well as its measure . . . [are] tied to the earnings which the State

. . . has made possible.” Commonwealth Edison Co. v. Montana, 453 U.S. 609, 626

(1981). The relevant inquiry is not whether the taxpayers have received any “direct

benefits” from the state, but “whether the state has given anything for which it can ask

return.” Id. at 622, 625. To this point, a taxpayer can be expected to contribute to a state

for benefits “derived from his enjoyment of the privileges of living in an organized

society.” Id. at 623. Such privileges include “police and fire protection, the use of public

roads and mass transit, and the other advantages of civilized society.” Goldberg v. Sweet,

488 U.S. 252, 267 (1989).

       Taxpayers contend that they did not receive any services from the state of

Missouri because their boats operate exclusively on the waters of the Mississippi River

and their only connection with the state of Missouri is through Louisiana Dock. This

argument, however, is anchored in neither law nor fact.

       The state boundary extends to the middle of the Mississippi River, and Missouri

enjoys concurrent jurisdiction over the western half of the Mississippi River with the

federal government. See section 7.001; Streckfus Steamers, Inc. v. City of St. Louis, 472

S.W.2d 660, 664 (Mo. App. 1971). While Taxpayers’ boats are on the western half of the

river, they are within the state of Missouri. The supplies delivered to the towboats while

they are on the western portion of the river are delivered in Missouri, whether they were

delivered by Louisiana Dock or a third-party vendor. As such, Taxpayers received the

                                               7
 
benefit of Missouri roads and docks that facilitated the deliveries of the taxed supplies

and from Missouri’s law enforcement and judicial systems while in this state. They also

enjoyed these benefits when they stored supplies in Louisiana Dock’s Missouri facility.

Importantly, the Taxpayers received these benefits by virtue of their presence in this

state, not simply because Louisiana Dock is located in Missouri.

       To support their argument, Taxpayers rely on American River Transportation Co.

v. Bower, 813 N.E.2d 1090 (Ill. App. Ct. 2004). ARTCO, similar to the instant case,

involved the question of whether a state can assess use tax on supplies consumed on

barges that plied the eastern portion of the Mississippi River in Illinois. The ARTCO

court found that because the supplies being taxed were purchased and loaded onto

tugboats in Missouri, the Illinois use tax failed the fairly related test. Here, however, the

state in which the deliveries occurred seeks to assess tax liability. The supplies were

delivered while Taxpayers’ towboats were in Missouri, and the AHC upheld sales and

use tax assessments on the supplies delivered in Missouri. ARTCO does not support the

position that Missouri cannot assess sales or use tax on the delivery of goods within its

own borders.

       Although Taxpayers argue that they do not receive any direct benefits from

Missouri, they reap the “advantages of a civilized society.” Further, the AHC decision

upheld sales and use tax assessments on deliveries that occurred in Missouri, so the taxes

were tied to the earnings this “state made possible.” The sales and use taxes assessed

against Taxpayers were fairly related to the services Missouri provides and did not

violate the Commerce Clause.

                                              8
 
    Tax Assessments Did Not Violate the Maritime Transportation Security Act

       The Taxpayers next argue that the Maritime Transportation Security Act, codified

at 33 U.S.C. § 5(b), prohibits Missouri from imposing any sales or use taxes on the

supplies delivered to the towboats. That federal statute provides that “[n]o taxes . . . shall

be levied upon or collected from any vessel or other water craft . . . by any non-Federal

interest, if the vessel or water craft is operating on any navigable waters subject to the

authority of the United States.”

       While the taxpayers argue that no taxes means no taxes, this argument fails to

consider what the state is actually taxing. Missouri is not taxing the barges, towboats, or

their crews. Rather, it is assessing sales and use tax on the goods and supplies delivered

to the Taxpayers’ towboats while they are in Missouri.

       In this way, the instant case is similar to Reel Hooker Sportfishing, Inc. v. State

Dep’t of Taxation, 236 P.3d 1230 (Haw. Ct. App. 2010), in which the state assessed a

general excise tax against a charter fishing company that navigated the waters

surrounding various Hawaiian islands. Although the taxpayers argued that this violated

the Maritime Transportation Security Act, the court found that the general excise tax was

assessed on the “privilege of doing business in Hawaii” and not on the boats themselves.

       In Missouri, section 144.020 states that a sales tax is levied “for the privilege of

engaging in the business of selling tangible personal property . . . in this state.” Likewise,

section 144.610 imposes a use tax “for the privilege of storing, using or consuming

within this state any article of tangible personal property.” Just as the tax in Reel Hooker

Sportfishing was assessed for the privilege of doing business in Hawaii, Missouri sales

                                              9
 
and use taxes are assessed for the privilege of carrying on various activities within this

state. Here, the sales and use taxes were assessed against Taxpayers for buying or using

supplies within Missouri, not against their vessels. As such, the sales and use taxes

assessed against Taxpayers do not violate 33 U.S.C. § 5(b).

                                Taxes Were Not Assessed Outside of the Statute of Limitations

              The taxpayers finally argue that the statute of limitations barred DOR from

assessing these taxes. Section 144.220 provides two limitation periods for assessing

additional tax liability. Under the first provision, if a taxpayer neglects or refuses to file a

sales tax return or files a fraudulent return, there is no time limit as to when DOR can

assess tax liability. 6 Section 144.220.1. In all other cases, DOR has three years after the

return was filed or required to be filed to assess additional sales tax liability. Section

144.220.3. Section 144.720 sets the same limitation period with respect to use tax

assessments.

              The Taxpayers point out that Louisiana Dock filed timely sales and use tax returns

for the audit period. They argue that since Louisiana Dock and ACBL are disregarded

entities for Missouri tax purposes under section 347.187.2, Louisiana Dock’s tax returns

satisfied CBL’s obligation to file tax returns for ACBL. Their argument continues that

DOR only had three years to assess additional tax liability, and any liability assessed after

that three years is barred by the relevant statute of limitations.


                                                            
6
  The failure to file a return, in certain situations, can constitute a neglect to file “where the
taxpayer did not otherwise disclose its operations to the [DOR] and could not rely on previous
decisions and policy of the [DOR] as an excuse for nondisclosure.” Hewitt Well Drilling &
Pump Serv., Inc. v. Dir. of Revenue, 847 S.W.2d 795, 798 (Mo. banc 1993).
                                                               10
 
        While it is true that Louisiana Dock filed tax returns for the audit period, those

returns did not accurately reflect the transactions of CBL, its parent company, or ACBL,

its affiliate, because both Louisiana Dock and ACBL provided inaccurate exemption

certificates to vendors. Further, neither CBL nor ACBL filed sales or use tax returns in

Missouri, and their tax liability does not stem from Louisiana Dock’s activities within

Missouri, but rather from ACBL’s purchase and use of supplies while in Missouri.

Because the Taxpayers did not file any tax returns or disclose their activities to DOR in

any other manner, the first statute of limitation provision of section 144.220 – that there

is no time limitation with respect to when DOR can assess tax liability – attaches. See

Hewitt Well Drilling & Pump Serv., Inc. v. Dir. of Revenue, 847 S.W.2d 795, 798 (Mo.

banc 1993). DOR was not barred from assessing taxes against Taxpayers.

                                            Conclusion

       For the foregoing reasons, the AHC’s decision is affirmed.



                                                            _________________________
                                                             Mary R. Russell, Chief Justice


All concur.




                                             11
 
