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Kansas City Power and Light Co. v. Director of Revenue, 83 S.W.3d 548

Facts

Kansas City Power and Light Company (KCP & L) is an electric utility that sold electricity to the Hyatt Regency Crown Center Hotel in Kansas City, Missouri. From September 1, 1995, to August 31, 1998, KCP & L collected $89,075.03 in sales tax on electricity sales to Hyatt, seeking a refund for the tax on electricity used in customer spaces, such as hotel rooms and meeting facilities. The Director of Revenue denied the refund, leading KCP & L to appeal to the Administrative Hearing Commission (AHC), which determined KCP & L was entitled to a refund of $41,589.14 for the sales tax on electricity used in occupied customer space.

KCP & L collected and remitted $89,075.03 in Missouri sales tax from September 1, 1995 to August 31, 1998 on its sales of electricity to Hyatt. KCP & L sought a refund of the proportion of this tax applicable to the electricity used by Hyatt to heat, cool and provide power to customer space, that is, in Hyatt's hotel rooms and meeting and banquet facilities.

Issue

Whether KCP & L's sales of electricity to Hyatt for use in its customer space were taxable as 'sales at retail' under Missouri statutes.

The key issue before the AHC was whether KCP & L's sales of electricity to Hyatt for use in its customer space were taxable as 'sales at retail' of electricity by KCP & L to Hyatt.

Rule

Sales of electricity are subject to tax unless they qualify as sales for resale, which are exempt from tax. A sale for resale is defined as a transfer of ownership or control of property for use or consumption by the buyer, not for resale.

A tax is hereby levied and imposed upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state.

Analysis

The AHC found that Hyatt purchased electricity for resale to its customers, as evidenced by the installation of thermostats in hotel rooms, allowing guests to control the electricity usage. The court emphasized that the relevant statutes focus on the transfer of control over the electricity rather than the economic realities of Hyatt's business model. The court concluded that the cost of electricity was factored into the room rates, supporting the claim that the electricity was held for resale.

Applying these statutes, the AHC found that Hyatt purchased the electricity used in its customer-occupied hotel rooms and in banquet and meeting rooms for resale, as that term is defined in section 144.605.7, rather than for its own use and consumption, because it placed a thermostat in each room, and the cost of that electricity was factored into the cost of each room, thereby transferring control of and selling the right of control the electricity to those renting its rooms.

Conclusion

The court affirmed the AHC's decision, holding that KCP & L was entitled to a refund of $41,589.14 for the sales tax paid on electricity used in customer space.

For all these reasons, KCP & L was entitled to a refund of the sales tax it paid on purchases of electricity for resale to those renting customer space.

Who won?

Kansas City Power and Light Company prevailed in the case because the court found that the transfer of control over the electricity constituted a resale, qualifying for a tax refund.

The AHC found that KCP & L was entitled to a refund of the $41,589.14 portion of the sales tax that it paid on electricity it provided to customer space, but not of the remainder of the sales tax, which was attributable to electricity provided to vacant hotel rooms and non-customer space.

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