LAURA DENVIR STITH, Judge.
TracFone Wireless, Inc., a Delaware corporation with its headquarters in Miami, Florida, seeks review of the Administrative Hearing Commission's denial of its request for a refund of the difference between the sales tax it paid on its sales to Missouri residents and the use tax it believes it should have paid. TracFone argued it qualified for the "in commerce" sales tax exemption set out in section 144.030.1.
This Court affirms. The burden is on the taxpayer to prove it qualifies for an exemption. The record supports the Commission's determination that the true object of the transactions was the sale of access to telecommunications services in Missouri, and the equipment and "Airtime" (TracFone's proprietary name for its package of minutes of access to cell towers and other equipment) were merely incidental to the sale of access to those services in Missouri. As TracFone failed to meet its burden of showing that the "in commerce" exemption applies, the decision of the Commission is affirmed.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Nature of TracFone's Transactions with Missouri Customers
TracFone operates a telecommunications business, but owns no telecommunication facilities, such as cell towers. Instead, TracFone contracts with several telecommunication carriers in Missouri, including Alltel, AT&T, US Cellular, T-Mobile, and Verizon, to buy access to their telecommunication facilities and services. It then sells prepaid access to what it calls its "virtual network" — actually the networks of the contracted carriers — in packages consisting of either a set number of minutes or "unlimited" minutes for a set time period, usually a month. TracFone refers to these packages as "Airtime."
TracFone has directly resold prepaid access to wireless telecommunications services to end users throughout Missouri continuously for more than 15 years. These services can be accessed only through use of TracFone handsets. These handsets are usable only when activated by TracFone and only to access telecommunications services sold by TracFone. They cannot be unlocked, modified, resold, or used to access another company's telecommunications services, and TracFone's end-user customers specifically agree not to use the handsets with another service provider.
The terms of services agreement also prohibits the end user from selling the handset. Once a customer has activated a handset, the customer can purchase additional Airtime without buying a new handset. All orders are taken in TracFone's Miami office, and all payments are made to the Miami office. TracFone has no warehouses or other facilities in Missouri, so handsets are shipped to Missouri customers from outside the state. The Commission found access to telecommunications services occurs largely in Missouri, and when Missouri customers use the handsets to access telecommunication services they do so principally through Missouri cell towers and other facilities. TracFone resells telecommunication services in every ZIP code in Missouri, and these services include local services such as local phone service and 911 emergency services.
B. Procedural History
In May 2013, TracFone sought partial refunds of the sales tax it paid on wireless telecommunications services from November 2009 through January 2010 and from February 2010 through February 2011. TracFone claimed that it sold handsets and Airtime from its Florida offices and did not make retail sales in Missouri and so did not owe Missouri sales tax on what it claimed were out-of-state sales of equipment and services. Rather, it argued, the purchases were subject to Missouri use tax. TracFone, therefore, sought the difference between the Missouri sale tax it paid and the Missouri use tax on the purchases of handsets and Airtime. The Director of Revenue denied the requested refunds, and TracFone appealed to the Commission.
Before the Commission, TracFone argued the sales qualified for the "in commerce" exemption in section 144.030.1 for sales that occur "in commerce" between Missouri and another state. The Commission disagreed and found in favor of the Director. First, it held that TracFone was selling access to telecommunications services in Missouri and, therefore, was engaged in retail sales in Missouri, stating:
The Commission, accordingly, found that TracFone's sales were subject to sales tax under section 144.020.1(4).
The Commission then found that TracFone was not entitled to claim the "in commerce" exemption from sales tax set out in section 144.030.1 for "such retail sales as may be made in commerce between this state and any other state of the United States" because TracFone was selling local access to telecommunications services in Missouri:
TracFone filed a petition for review arguing that, while the sales at issue may be retail sales under section 144.020.1, they qualify for the "in commerce" exemption set out in section 144.030.1. Because this appeal involves construction of Missouri's revenue laws, this Court has exclusive jurisdiction of the appeal. Mo. Const. art. V, § 3.
II. STANDARD OF REVIEW
The Commission's decisions "shall be upheld when authorized by law and supported by competent and substantial evidence upon the whole record," provided "a mandatory procedural safeguard is not violated" and the decision is not contrary to what this Court concludes were the "the reasonable expectations of the general assembly at the time such authority was delegated to the agency." § 621.193. This Court reviews the Commission's interpretation of revenue statutes de novo. IBM Corp. v. Dir. of Revenue, 491 S.W.3d 535, 538 (Mo. banc 2016). "Tax exemptions are strictly construed against the taxpayer." Id. The burden is on the taxpayer to prove an exemption applies by "clear and unequivocal proof," and "all doubts are resolved against the taxpayer." Id.
III. TRACFONE'S SALES DO NOT QUALIFY FOR THE "IN COMMERCE" EXEMPTION
Six Flags Theme Parks, Inc. v. Dir. of Revenue, 102 S.W.3d 526, 527-28 (Mo. banc 2003), held that to determine whether a particular retail sale qualifies for the "in commerce" exemption, one must look for the "true object" of the transaction. In Six Flags, the transactions were the sales of admission tickets and season passes to out-of-state customers. Phone orders for tickets were taken from customers calling from outside Missouri; a portion of the fees were collected outside Missouri; credit card payments were processed outside Missouri; and the tickets were shipped to addresses outside Missouri. Id. at 528. Despite these "incidental or nonessential interstate elements" of the transactions, Six Flags held that the sales qualified as taxable sales in Missouri because, at heart, each sale was "essentially [a] ... local transaction," the essence or "true object" of which was admission to the Missouri amusement park:
Although TracFone claims that Six Flags is out of step with other Missouri tax cases, it cited and relied on principles set out in prior cases such as Lynn v. Dir. of Revenue, 689 S.W.2d 45, 46, 47-48 (Mo. banc 1985). Lynn held that transactions for sightseeing excursions on the Missouri River near Kansas City that began and ended in Missouri but crossed into Kansas for part of the trip did not fall within the "in commerce" exemption even though it was intended that part of the excursion would occur in another state because "the business of transporting passengers is not what is being taxed. The object of the taxation in this case was the admission fee charged for a place of amusement or recreation." Id. at 48.
Branson Scenic Ry. v. Dir. of Revenue, 3 S.W.3d 788, 789 (Mo. App. 1999), used similar reasoning. Applying what it found was the settled understanding of the "in commerce" exemption, Branson held that a scenic railway excursion departing from and returning to Missouri that sometimes crossed into Arkansas did not fall under the exemption because its "objective" was not transportation in commerce but entertainment, access to which occurred in Missouri. Because the legislature intended to tax "fee[s] paid to, or in, a place of amusement, entertainment or recreation," the transactions were taxable and did not qualify for the exemption. Id. at 790-91.
TracFone has described its business as selling cell phone service through a "virtual network" composed of services obtained from numerous licensed carriers who are licensed operators of wireless networks. The essence of the transactions was the sale of telecommunication services, not the sale of tangible personal property in commerce between states.
TracFone argues that this Court should reject the "true object" test because the plain text of the exemption set out in section 144.030.1 requires this Court to hold that all sales made in Missouri by sellers located outside the state are "in commerce." In support, TracFone cites cases finding sales into Missouri by non-Missouri sellers were subject to the "in commerce" exemption. But in each case, the true object of the sale was the purchase of tangible personal property, title to which changed hands outside Missouri.
TracFone also says that Missouri constitutionally is not permitted to impose sales tax on sellers located outside the state. While the Commerce Clause requires a state nexus, Commercial Barge Line v. Dir. of Revenue, 431 S.W.3d 479, 483 (Mo. banc 2014), citing Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977), TracFone has not cited any cases holding taxation of access to telecommunications services is impermissible, nor did it include any constitutional argument of this nature in its points relied on. Additionally, in argument before the Commission, TracFone stated, "It's also not an issue in dispute in this lawsuit whether there is sufficient nexus with Missouri to require TracFone to collect and remit taxes. TracFone is not contesting nexus here."
Finally, TracFone argues that the legislature must not have intended the sales to be subject to sales tax because they are subject to Missouri's use tax and so should be taxed under section 144.610.1, which provides in relevant part: "A tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property ... purchased on or after the effective date of sections 144.600 to 144.745 in an amount equivalent to the percentage imposed on the sales price in the sales tax law in section 144.020." § 144.610. 1.
As just noted, here the tax is imposed on the sale of access to telecommunications services in Missouri, and by its terms the use tax is inapplicable, as it is imposed only on the purchase of "tangible personal property." Id. Even assuming title to the handsets exchanged hands outside Missouri, the sales were only incidental to the true object of the transactions at issue, which was the sale of telecommunication services in Missouri. While TracFone argues it is unfair to apply a use tax only on tangible personal property and not services, the decision whether to impose use tax on services is for the legislature, not this Court. TracFone cites no cases holding that a state cannot choose to impose a use tax more narrowly than it imposes a sales tax.
The true object of TracFone's business was the sale of prepaid wireless telecommunication services, including the sale of handsets as equipment incidental to the sale of telecommunication services. The transactions do not qualify for the exemption set out in section 144.030.1 for sales "in commerce" between states. The Commission did not err in finding that TracFone is not entitled to a partial refund of the sales tax paid on these transactions.
Breckenridge, C.J., Fischer, Draper, Wilson and Russell, JJ., concur.
While TracFone says Missouri customers also could access telecommunications services elsewhere, the record does not establish that most or even any of the cell phone service was used outside Missouri, and as the Director of Revenue notes, absent a showing that out-of-state use was an integral part of the transaction, the fact that a good or service was able to be used in other locations after the transaction is completed does not affect whether it qualifies for the "in commerce" exemption. Overland Steel, Inc. v. Dir. of Revenue, 647 S.W.2d 535, 539 (Mo. banc 1983).