Does a political subdivision that runs riverboat excursion tours have to charge Missouri sales tax on its ticket prices, and on its onboard food and souvenir sales?

Subject

Taxability of Boat Excursion Tours

Plain-English summary

The Missouri Department of Revenue ruled on two separate questions for a body corporate and politic (a political subdivision created by an interstate Compact between Missouri and another state, approved by Congress) that owns and operates a riverboat excursion tour business, including two replica 19th-century paddle-wheel steamboats.

The Applicant's ticket fees and charges for sightseeing tours, dinner cruises, private events, and charters are NOT taxable. Section 144.020.1(2), RSMo, would normally impose sales tax on fees and charges paid to access a place of amusement, but Section 144.030.2(17), RSMo, exempts admission fees to a place of amusement, entertainment, or recreation owned or operated by a political subdivision, so long as the proceeds are not retained by a private party. Because the Riverboats are a place of amusement, the Applicant is a political subdivision, and it represented that ticket proceeds are not retained by a private party, the ticket fees and charges are exempt.

The Applicant's sales of tangible personal property -- food, beverages, meals, souvenirs, and sundries -- ARE taxable. Even though the Applicant is a civic organization (satisfying the first step of the two-part test from Beyond Housing, Inc. v. Director of Revenue), the Department found the second step was not met: these sales help diversify the Applicant's income sources, and the income from them supports the Applicant's other activities, so the sales are conducted for a business purpose rather than in furtherance of the Applicant's civic or charitable functions. As a result, the exemptions in Section 144.030.2(19) and (20), RSMo, for sales by charitable or civic organizations in their charitable/civic functions do not apply, and Section 144.020.1(1), RSMo, imposes ordinary sales tax on those retail sales.

What this means for you

Political subdivisions and similar public bodies operating amusement venues

If your organization is a political subdivision (or similarly created public body) that owns or operates a place of amusement, entertainment, or recreation -- and the proceeds from admission fees are not retained by a private party -- this ruling indicates those admission fees and charges are exempt from Missouri sales tax under Section 144.030.2(17), RSMo. That exemption applies specifically to the price of getting in the door (or onto the boat), not to everything the organization sells once customers are there.

Civic and charitable organizations selling goods alongside their core mission

Being a civic or charitable organization is necessary but not sufficient for a sales tax exemption on your sales of goods. Under the Beyond Housing test applied here, you must also show the specific sales are made in your charitable or civic function -- not merely that the revenue eventually supports that function. Selling food, beverages, or souvenirs to diversify income and fund other operations was treated as a business activity, so those sales were taxable even though the organization itself is unquestionably civic in nature.

Accountants and tax professionals

When advising a civic or governmental client with mixed revenue streams, separate the analysis by revenue type rather than treating the whole operation as exempt or taxable. Here, ticket/admission revenue and tangible-personal-property revenue from the same business got opposite tax treatment under different statutory exemptions (Section 144.030.2(17) versus Sections 144.030.2(19)-(20)), even though both streams flow through the same civic entity. Confirm whether proceeds from any admission-type fee are retained by a private party, and apply the two-step Beyond Housing test (charitable/civic in nature, and the specific sale made in furtherance of that function) separately to each category of tangible personal property sold.

Common questions

Q: Are the Applicant's ticket fees for boat tours, cruises, and charters taxable?
A: No. Section 144.030.2(17), RSMo, exempts fees and charges paid to access a place of amusement owned or operated by a political subdivision, and the Applicant represented that its ticket proceeds are not retained by a private party.

Q: Are the Applicant's sales of food, beverages, and meals onboard the Riverboats taxable?
A: Yes. These sales are treated as a business activity because they help diversify the Applicant's income and the proceeds fund other activities, so they don't qualify for the civic/charitable exemptions under Section 144.030.2(19)-(20), RSMo.

Q: Are souvenir and sundry sales taxable too?
A: Yes, for the same reason as the food and beverage sales -- they are sales of tangible personal property made for a business purpose rather than as part of the Applicant's civic functions, so Section 144.020.1(1), RSMo, applies.

Q: Why does being a "civic organization" not exempt all of the Applicant's sales?
A: Under the two-part test from Beyond Housing, Inc. v. Director of Revenue, qualifying as a civic or charitable organization is only the first step. The organization must also show the specific sales were made in its civic or charitable function, not merely that the resulting income supports that function indirectly.

Q: Does it matter that the Applicant is a political subdivision created by an interstate Compact rather than a typical nonprofit?
A: The ruling treats the Applicant as a unit of local government that qualifies as a civic organization, which is why the Section 144.030.2(17) admission exemption and the civic-organization exemption analysis both applied -- but that status still did not save the tangible personal property sales once the Beyond Housing test was applied.

Q: Can another organization rely on this ruling for its own boat tours or amusement venue?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only with respect to the requesting Applicant, only for three years from its date, and only so long as the facts and underlying law remain unchanged. A different organization should confirm its own facts match -- especially whether admission proceeds are retained by a private party and whether its goods sales serve a civic/charitable function -- and consult a tax professional before relying on this result.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8222

Original ruling text

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated October 24, 2022.

The facts as presented in your letter ruling request, along with research into your operations, are summarized as follows:

The Applicant is a body corporate and politic created by a Compact ('Compact') between the state of Missouri and another state, and approved by a Joint Resolution of Congress.  The Compact gives the Applicant the authority to assist with or implement regional programs and activities. The Applicant is specifically authorized to operate passenger transportation facilities and water terminal facilities such as the riverboat activities described below.

The Applicant owns and operates a boat excursion tour business located on a riverfront. The assets of the Applicant include two replicas of 19th Century paddle-wheel steamboats (the "Riverboats"), various barges, and other related equipment.

The Riverboats and other related boats and equipment are used to facilitate (1) sightseeing tours, dinner cruises, private events and charters; (2) food, beverage, and meal sales; and (3) souvenir and sundry sales. These operations help to diversify the Applicant's income sources, and income from these operations are used solely in support of the Applicant's charitable and civic activities and are not retained by private parties.

ISSUE 1 :

Are the Applicant's ticket fees and ticket charges taxable?

RESPONSE 1 :

No. Section 144.030.2(17), RSMo, exempts ticket "fees" and "charges" paid to access a place of amusement, entertainment, or recreation owned or operated by a political subdivision.

Section 144.020.1(2), RSMo, imposes a tax upon fees and charges paid to access places of amusement.

Section 144.030.2(17), RSMo, exempts fees and charges paid to access places of amusement owned or operated by a political subdivision, with limitations applicable when proceeds are retained by a private party.

The ticket fees and charges are paid to the Applicant for access to the Applicant's Riverboats.  The Riverboats are a place of amusement.  The Applicant is a political subdivision, and represents that its ticket proceeds are not retained by a private party.  Section 144.030.2(17), RSMo, therefore exempts ticket fees and charges used to pay for access to the Applicant's Riverboats.

ISSUE 2 :

Are the Applicant's sales of tangible personal property taxable?

RESPONSE 2 :

Yes.  Applicant's sales of tangible personal property (like food and clothing) are taxable as they are not a part of Applicant's civic functions and activities.

Sections 70.370. - 70.441 RSMo, govern the creation and operation of the Applicant as a body corporate and politic.

Pursuant to the Applicant's 1991 Settlement Agreement with the Department of Revenue, the Applicant is exempt from sales and use taxes as a civic organization on the Applicant's purchases and sales in the exercise of its civic functions and activities.

Section 144.020.1.(1), RSMo, imposes a sales tax on retail sales of tangible personal property.

Section 144.030.2, RSMo, now provides exemptions from state sales and use taxes that include:

(17) All amounts paid or charged for admission or participation or other fees paid by or other charges to individuals in or for any place of amusement, entertainment or recreation... owned or operated by a... political subdivision where all the proceeds derived therefrom benefit the... political subdivision and do not inure to any private person, firm, or corporation...;

(19) All sales made by or to... charitable organizations and institutions in their... charitable... functions and activities[.]

(20) All sales... made by or to not-for-profit civic . . . organizations . . . in their civic or charitable functions and activities[.]

In Beyond Housing, Inc. v. Director of Revenue , ___ S.W.3d ___ (Mo banc. Opinion Issued September 13, 2022) (' Beyond Housing' ), the Missouri Supreme Court held that an organization must meet two requirements before being entitled to a charitable sales and use tax exemption.   Id .  First, the organization needed to be charitable in nature.  Id .  Second, the sales needed to be made by, or to, the organization in its charitable function. Id .

The Applicant is organized as a body corporate and politic and therefore a unit of local government that qualifies as a civic organization.  As Applicant is a civic organization it meets the first step articulated in Beyond Housing .

Not all activities undertaken by civic or charitable organization qualify as civic or charitable functions.  While Sections 144.030.2(19) and (20), RSMo, grant sales and use tax exemptions for civic and charitable organizations, Beyond Housing makes it clear that those exemptions are only applicable when an organization is operating solely in connection with its civic or charitable functions and activities. Therefore, qualifying as a civic or charitable organization is necessary, but not sufficient, for application of the sales tax exemptions under Section 144.030.2(19) and (20), RSMo.

Here, the Applicant receives an indirect gain, benefit, or advantage from the money received as payment for tangible personal property.  These sales of tangible personal property help to diversify the Applicant's income sources, and income from the sales are used in support of the Applicants other activities.  Therefore, the sale of such property is deemed to be conducted with the primary purpose of engaging in a business, not civic, activity.  Selling goods for the primary purpose of engaging in a business activity causes the Applicant's sales of tangible personal property to fail under the second step of Beyond Housing .  Therefore, the Applicant's sales of tangible personal property are taxable because those sales do not to qualify under either the civil or charitable exemptions found in Sections 144.030.2(19) and (20), RSMo.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel Nathan Jefferson, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford

WW:MAS:CRF:NJ:km