It has been brought to my attention that DOC officials are advertising on the prison internal television network system that beginning February 1, 2014, inmates will be charged sales tax for all items purchased out of prison canteens, though the amount of sales tax in what will be charged is not currently being disclosed.
In my inquires about this, as such appears to violate Mo. Rev. Stat. Section 217.195, Paul Harper of the Missouri Department of Revenue sent me a legal opinion letter and claimed that it authorizes the Missouri Department of Corrections to charge inmates sales tax, as if the DOC were a retailer no different than Walmart.
However, the legal opinion letter, shown below, is directed at vendors who do business with the DOC and not at inmates, moreover, it contains a disclosure statement that the legal opinion expires three years after it was created, i.e. created on April 7, 2009 and expired on April 7, 2012 so it is no longer valid.
There are many issues in charging inmates sales tax; most notably is that the law which governs canteen sales (Mo. Rev. Stat. Sec 217.195) requires all revenue generated to be used to benefit inmates in such programs as, but not necessarily limited to, educational, recreational, and religious activities.
Additionally, the law prohibits placing any revenue generated from canteen sales in the states general revenue fund. Therefore, all sales tax generated from the canteen cannot be transferred to the state and by law, the sales tax generated must also be used to benefit the inmates, which means it is just another way for the DOC to price gouge by inflating canteen item prices.
One of my counter arguments is that in declaring the DOC is authorized to charge inmates sales tax on the premise that the DOC is a retailer no different than Walmart then the DOC is no longer a non-profit state agency and is subject to the Missouri Merchandising Practices Act and its provisions and prohibited conduct. See
Mo. Rev. Stat. § 407.020. And that in declaring the Missouri Department of Corrections is operating as a retailer no different than Walmart when it sells inmates merchandise out of the canteen, the Missouri Department of Revenue has stripped the Missouri Department of Corrections of all sovereign and Eleventh Amendment immunity rights.
The Act prohibits unfair business practices such as, but not limited to, creating and using a monopoly system and price gouging. Thus, in declaring that the Missouri Department of Corrections is a retailer no different than Walmart, the Missouri Department of Corrections is violating the Missouri Merchandising Practices Act by creating and / or using a monopoly system and / or price gouging.
One example of price gouging is defined in the Missouri Code of State Regulations [15 CSR § 60-8.030] by the Missouri Attorney General's Office, which can be read at http://www.sos.mo.gov/adrules/csr/cu...sr/15c60-8.pdf
(1) It is an unfair practice for any person in connection with the advertisement or sale of merchandise to—
(A) Take advantage of a person's physical or mental impairment or hardship caused by extreme temporary conditions, and charge a price substantially above the previous market price of the merchandise in seller's trade area;
Missouri Code of State Regulation 15 CSR § 60-8.020 and 15 CSR § 60-8.021.
Additionally, I have argued that because Mo. Rev. Stat. § 217.195 does not authorize the DOC to charge inmates sales tax then doing so is illegal, as a so-called legal opinion letter does not supersede state law and does not give legal permission where the law does not do so.
Moreover, because the legal opinion letter relied upon by the Department of Revenue expired last year, then the DOR is utilizing an invalid claim by virtue of it expiring, to claim the DOC is authorized to charge sales tax and thus, further demonstrates that charging inmates sales tax is illegal.
I have also argued that where I can buy a pair of sweatpants at Walmart for $5.00 plus tax, yet, have to pay $17.50 to buy sweatpants from a prison canteen, which in itself is price gouging, imposing a sales tax serves only to inflate the price even more and thereby continue price gouging because the money paid has to benefit individual prison programs and not the state nor the DOC.
Senator Box Dixon and State Representative Mike Kelley are looking into this and waiting for the DOC to respond with answers about what is going on.
The letter Paul Harper sent to me is:
Letter Ruling Number: LR5567
Letter Ruling Title: Sales at Retail within Penal Institution
Letter Ruling Date: 04/07/2009
Tax Type: Sales/Use
RE: Sales at Retail within Penal Institution
April 7, 2009
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 February 9, 2009.
The facts as you presented them in your letter are summarized as follows:
Applicant is the Institutional Activities Coordinator at a Missouri state correctional center. Applicant manages two offender organizations that sell items through the institution’s canteen. Profits generated from the sales of the items are used to fund the organizations’ educational and rehabilitation programs. The organizations donate a great deal of their profits to various local organizations.
Are the offender organizations exempt from Missouri sales tax?
No. The offender organizations are not exempt from Missouri sales tax.
Section 144.020, RSMo, imposes a tax on all sellers for the privilege of engaging in the business of selling tangible personal property at retail in this state.
Section 144.030.2(19), RSMo, exempts from the sales tax all sales made by or to religious and charitable organizations and institutions in their religious, charitable or educational functions and activities.
Section 144.030.2(2), RSMo, exempts from sales tax all sales made by or to not-for-profit civic, social, service or fraternal organizations in their civic or charitable functions and activities and also exempts all sales made to penal institutions, but not sales by a penal institution.
The facts provided by Applicant indicate that the offender organizations are making sales at retail through the canteen. If no statutory exemption is applicable to the offender organizations’ sales, those sales are subject to sales tax.
The offender organizations make the sales to earn profits to support their own educational and rehabilitation programs. The members of the organizations therefore receive the direct benefit from these programs. Even though a portion of the profits are donated to local organizations, the offender organizations are not charitable or civic organizations and are not recognized as organizations exempt from Missouri sales tax.
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 feel free to contact Ron Clements, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-4413), or me.
Karen King Mitchell
At the present time, it is unknown if this is being done in all prisons or if it is only being done at specific prisons for Sec. 217.195 says that each prison is entitled to keep the revenue generated from canteen sales but must do so in a separate account. However, regardless if this is being done in only specific prisons, it is still a violation of Missouri law [Sec. 217.195] because the DOC is not authorized by law to charge inmates sales tax.
Charging vendors sales tax is an entirely different matter and keep in mind it is reported that canteen sales generate a combined annual revenue of $3 million. Charging inmates sales tax on canteen items serves no substantial purpose other than to inflate already over-inflated prices which neither the state nor the DOC itself may financially profit from under current state law, e.g. Section 217.195.