WICHITA, Kan. (4/10/12)--A Kansas appeals court has overturned an order by the Kansas Court of Tax Appeals, with the higher court saying that Wichita-based Cessna Employees CU (CECU) is exempt from a state retailers' tax on travel-related expenses that were passed on to the credit union in a vendor's invoice.
According to the ruling Friday by the Court of Appeals of the State of Kansas, Cessna had made a claim on June 30, 2008, for a $3,333 refund of the state taxes on travel, hotel and meals listed by an invoice from a service provider, Jack Henry & Associates (JHA), with whom the credit union had contracted computer upgrade services that required its employee to travel to Wichita. JHA invoiced CECU for its services, hardware and software, and presented a separate invoice for the travel purchases (its employee's transportation, meals and lodging). Cessna paid the invoice but sought a refund of the sales tax amount.
The state tax department denied the claim on June 30, 2008, and CECU appealed the denial on Nov. 11, 2008 to the department secretary, who upheld the department's denial on July 17, 2009. The $209 million asset credit union then appealed to the Court of Tax Appeals on Aug. 17, 2009,
The lower court said in its summary judgment that the travel expenses billed to the credit union were "part of the total amount of consideration given by CECU in the transaction for which the taxable goods and goods and services were sold" and thus subject to Kansas retailers sales tax as part of the 'gross receipts' of JHA in the transaction."
However, the Kansas Court of Appeals concluded there was no "sale" of the reimbursed travel expenses, and it reversed and remanded the case with directions to grant CECU's refund claim.
It said the amount invoiced was the original travel expenses plus sales tax paid, but with sales tax then computed on that total and billed for reimbursement to CECU. "The sales tax at issue here has been levied upon the total amount of consideration given by CECU in the transaction with JHA for providing the upgrades. In this transaction…we find that the travel is properly considered an expense incurred by the seller," the ruling said.
"We found no ambiguity in the statutory language as it applies to this case. Quite simply, there were no retail sales involving the travel expenses, so no retail sales tax may be applied to them--those taxes already having been fully paid by the end consumer of those expenses …," the ruling continued.
The higher court also noted that even if the statutes were ambiguous, "the rule of strict construction of tax imposition statutes must favor the taxpayer."