Many Missouri business owners who provide instructions, lessons and coaching to their clients are getting surprises in the form of audit notices and tax bills from the Missouri Department of Revenue Sales Tax Unit. The State of Missouri is taking the positon that these lessons are taxable even though the sales tax statute has not changed in many years.
How did this come about?
The Missouri sales tax statute has always taxed "sales of admission tickets, cash admissions, charges and fees, to or in places of amusement, entertainment and recreation, games and athletic events." However, in the Missouri Supreme Court case, Michael Jaudes Fitness Edge vs. Director of Revenue, the statute was interpreted to also include fees paid for lessons and instructions. Mike Jaudes, a fitness instructor, opened his own facility after his client base became too large for him to provide instructions to his clients at their homes or individual gyms. This changed Mike Jaudes from a service provider to having a facility as a place of recreation. The state audited him and sent him a bill. Jaudes fought back and the case went to the Missouri Supreme Court. In the end, the Missouri Supreme Court sided with the state.
Soon after that, Letter Ruling 49-12 was issued, where it was determined that the fees a business owner charged its members for rock climbing, swimming lessons, tennis lessons, dance instructions and karate instructions were not subject to sales tax.
Then, in December 2009, the Director issued Letter Ruling 60-29 reversing herself and citing the Michael Jaudes case that fees paid for instructions were subject to Missouri sales tax.
There has been no explanation as to why the interpretation completely flipped in a year and a half other than the fact the economy was in the tank and the state needed money. There have been numerous attempts in the Missouri House and Senate to pass bills to change these laws only to be overwritten by the Governor's veto.
What can I do?
We are providing this information so that you can address the issue. We recommend you contact your state senator or representative to let them know how unjust this action is by the State of Missouri and that you would like a legislative solution.
In the meantime, please give us a call to help you run through your exposure and work with your team and counsel on the appropriate steps that you need to take to protect your organization.
Douglas M. Mueller, CPA