Section of Taxation Publications

VOL. 60
NO. 4

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Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Please Hang Up and Try Again: The Missouri Supreme Court Speed
Dials Telephone Services into the Manufacturing Exemption Too Quickly
in Southwestern Bell Telephone Co. v. Director of Revenue

Natanyah Ganz


In Southwestern Bell Telephone Co. v. Director of Revenue, the Supreme Court of Missouri applied the sales and use manufacturing exemption in section 144.030.2(4) and (5) of the Missouri Taxation and Revenue Statute to equipment used to produce basic and vertical telephone services. Sales and use tax exemptions are contentious and uncertain legal topics in today’s world of advanced technology and manufacturing, and Bell II was on appeal from the Administrative Hearing Commission (AHC) for the second time. The issue on appeal in Bell II was whether the AHC correctly granted Southwestern Bell Telephone Co. ( Bell or the taxpayer) a refund on a sales and use tax that the company had paid on equipment to produce telephone services. The Missouri Supreme Court affirmed the AHC’s decision, which granted the taxpayer a refund.

This Note argues that the Missouri Supreme Court’s holding in Bell II was correct but was neither as clear nor as well reasoned as such an important policy-setting case should be. Modern communication providers are developing increasingly complex services, and tax exemption statutes affect these providers in important ways. Thus, the courts must not only interpret statutes properly but also deliver effective and workable opinions for taxpayers and tax advisors to follow.

Part I of this Note details the statutory, factual, and procedural background of the case. Part II outlines the Supreme Court of Missouri’s majority opinion. Part III argues that the court’s holding was correct, but could have been better articulated. Finally, Part IV concludes with an outlook on the future of litigation and legislation in the area of new types of manufacturing.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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