The road to next week’s special session of the General Assembly began more than two years ago, when David Kehlenbrink bought a $27,500 black Dodge Ram pickup truck.
Kehlenbrink, a 62-year-old St. Louis County carpenter, followed up with a task familiar to every Missourian of car-buying age: titling his new truck and paying taxes.
On March 31, 2017, he presented a license office employee with proof that he and his wife Jill, a retired teacher, had sold a car and motorcycle earlier that year. The employee credited the value of the vehicles against their new purchase, knocking his sales tax bill down to $1,095.13, which Kehlenbrink paid.
Things were going smoothly.
But then Kehlenbrink said he planned to sell two more cars in the next two months. The license worker told him that since the sale was within six months of buying his truck, he could apply for a sales tax refund to the Missouri Department of Revenue (DOR).
So Kehlenbrink sold the cars in May and June and submitted the form to reclaim his $1,095.13.
Denied, the agency wrote back in July. He already got his credit, it said.
That’s not what license office employee told him, he wrote on a blank sheet of printer paper in pen. He coupled it with an affidavit of the employee’s supporting testimony, notarized by the worker himself.
“I’m just sticking up for what’s right,” Kehlenbrink said he thought at the time.
His modest protest triggered a legal fight that the Department of Revenue would win at the Missouri Supreme Court—only to see Gov. Mike Parson call a special session so that lawmakers could pass a bill reversing the agency’s victory.
The Missouri Supreme Court said DOR was right on the law. Missourians are entitled to one tax credit per vehicle trade-in. But the players who actually run the system — car dealers and license office employees — relied on another, more generous, regulation that allowed tax trade-in credits for multiple cars.
Once the Supreme Court weighed in, siding with DOR, the inconsistency could no longer be ignored.
The court ruling, last June 25, triggered the need for a legislative “fix,” according to Parson. His position is that Missourians should be able to count more than one vehicle sale toward the sales tax bill on a new purchase. He told reporters last week that the ruling would “negatively impact” state residents.
“It’s just part what you are supposed to do as a legislator, what I’m supposed to do as a governor, whether you like the issues or not,” said Parson, who has drawn heat from Democrats for not opening the special session to other issues like school safety and Medicaid.
Though the Department of Revenue argued for one motor vehicle per trade-in credit in front of the Supreme Court in December of last year, it said it supported the special session.
“The Supreme Court’s recent decision in Kehlenbrink created a need to clarify an area of state law that has been historically unclear to the citizens of Missouri,” Ken Zellers, DOR’s acting director, said in a statement announcing the special session. “The special session presents an excellent opportunity to do just that.”
When asked why he didn’t promote a legislative fix during the regular session, given that the Supreme Court heard the case last year, Parson said he didn’t know about the “car sales tax issue” until the ruling.
“We didn’t know about it until the Supreme Court decision,” Parson told reporters last week. “We are trying to figure out how to do that now.”
An unexpected win
When Kehlenbrink pushed back against the Department of Revenue’s decision, it triggered an appeal to the state’s administrative hearing commission (AHC), which resolves disputes between state agencies and individuals in a quasi-judicial setting.
Other Missourians had been down this road before, told one thing at the license bureau counter and another by the DOR.
“I do not have all the legal terms or a lawyer representing me,” a Nixa woman told the AHC in October of 2016, in asking it to grant her a $489.44 sales tax refund. “...I trust (the license bureau employee) to know the law and give me the correct information. This is not something a ‘normal citizen’ would even know about.”
“This may seem like a small amount of money but we feel that we should not be denied this credit,” a Robertson, Mo., couple wrote to the AHC in November 2015, asking for a refund of about $1,000. “The Pacific (Mo.) license office is there to inform people how the process works and that didn’t happen in our case. I feel like we should be given credit for both trucks.”
Over and over again, the DOR argued before commissioners that state law only allowed for one trade-in credit. And the AHC had always ruled in their favor.
The debacle of trying to get his sales tax refund changed David Kehlenbrink’s opinion of DOR. He had paid sales tax on every one of the vehicles he traded in and denying him the refund amounted to double taxation, he said.
“They are not treating the citizens of Missouri fairly,” he said of DOR. “People count on that tax refund. That could be what makes the decision of buying a new car.”
The Kehlenbrinks had one asset those others didn’t: a son who was an attorney.
“If Joe Shmoe walked in off the street and had this case, I’d say, ‘Joe, I agree with you but you are never going to break even by paying me to run this thing down to where it’s going to go,’” their son, Scott Kehlenbrink said.
Getting DOR to pay up became a matter of principle for the St. Louis trial attorney who handles injury and defective product cases. He refiled a typed complaint, challenging the agency’s actual interpretation of the law. His parents weren’t going to get bounced from the AHC for missing a deadline or not knowing to appear for a hearing.
He argued that the law was ambiguous, allowing to let stand a 2006 regulation promulgated by the agency.
Despite DOR’s denial of a sales tax refund to the Kehlenbrinks, it still had a 2006 regulation on the books that had become common practice. It said one or more cars, sold before or after the purchase of the vehicle, could be traded in to offset the sales paid.
He noted that the agency had already allowed for multiple cars -- the first two sold -- to knock down the sales tax price on his dad’s pickup truck.
“The statute is so ambiguous to cause even the Department’s own agent to provide false and inaccurate information to the public,” Scott Kehlenbrink wrote to the AHC.
The agency noted that several commissioners had found in favor of its position. Since the law was clear, the commission didn’t have to pay attention to the 2006 regulation, it argued.
“The plain language of the (statute) permits only one credit, based upon the sales price of a single sold motor vehicle, to be taken against the purchase price of a single replacement motor vehicle,” the agency’s legal brief stated.
A hearing was held in January of 2018 and a commissioner issued a decision in June.
For the first time in recent history, the Department of Revenue lost.
An unexpected appeal
Commissioner Sreenivasa Rao found the Kehlenbrinks were owed their refund plus interest.
In his decision, Rao wrote none of the previous AHC petitioners had challenged the law, which he found to be unclear. Because the law was ambiguous, the regulation should be followed, he said.
By then, state leadership at the top had changed. Gov. Eric Greitens had resigned in disgrace. Lt. Gov. Mike Parson stepped up to take his place. However, he retained Greitens’ DOR director Joel Walters.
In July 2018, the department, represented by the attorney general’s office, asked the Missouri Supreme Court to review the AHC’s decision in July of last year.
The Missouri Supreme Court agreed to take on the review and oral arguments were set for December.
In legal briefs, Deputy Solicitor General Joshua Divine argued the case was “open and shut,” saying the state law was clear. To allow for a sales tax refund would “compound” the license office’s “error” in already allowing two vehicles to be credited.
“It allows a taxpayer to credit one—and only one—vehicle sale against the purchase price of a replacement vehicle,” Divine wrote.
He cited 16 AHC cases between 2008 and 2016 in which commissioners had agreed with DOR that only one credit could be claimed for a vehicle trade-in.
Along with the same arguments he made at the AHC, Scott Kehlenbrink noted that the Department of Revenue was going against its own regulation and practice.
“For reasons not entirely clear, the Appellant now wishes to abandon the plain language of its own regulation which provides inarguable clarity to the statute at issue,” Kehlenbrink wrote to the Supreme Court.
An unexpected ruling
A month passed. The legislative session began.
DOR had other problems on its hands. When taxpayers complained to lawmakers about lower than expected income tax refunds, the agency had to explain that federal tax cuts had affected the way it counted deductions.
After contentious hearings, Walters stepped down in March and Parson replaced him with current DOR director Ken Zellers.
Scott Kehlenbrink said one of the reasons he didn’t approach lawmakers about changing the law was that he thought he would win at the Supreme Court. Plus, a change in law wouldn’t have helped his family.
“It wasn’t necessarily my position to go to a legislator and say change this law because that would have done my dad no good, you know?” Scott Kehlenbrink said. “He was trying to get his money back and the only way to do that was to get someone to say the department wrongfully enforced the statute.”
A month after the legislative session ended, the Supreme Court issued its decision: it had agreed with the Department of Revenue.
The state law was clear, it wrote.
The law applied not only to cars, but all motor vehicles like motorcycles, boats, RVs and ATVs. The ruling broke with the norm practiced at license offices and with car dealers, where sometimes the sales tax of a new motor vehicle would be reduced after factoring in the sale of a truck, a trailer, outboard motor and boat it hauled.
“(The statute) unambiguously permits the sale proceeds of only one vehicle to reduce the purchase price of a newly purchased vehicle for purposes of calculating sales tax,” Judge Patricia Breckenridge wrote in a unanimous opinion.
An unexpected special session
The ruling ended David Kehlenbrink’s pursuit of his S1,095.13.
“It seems like my dad’s going to be out of luck,” Scott Kehlenbrink said last month.
Changing the law, however, would minimize the impact to future car buyers.
Citing the Supreme Court ruling, Parson hinted at a possible special session to Missourinet at the Missouri State Fair Aug. 19.
At the time, Parson said the ruling would affect 2,000 to 3,000 Missourians. Later, his office said the number was a misunderstood hypothetical.
Earlier reports said the issue would affect mostly rural car buyers.
“To me, that’s nothing but spin and that makes no sense,” Scott Kehlenbrink said. “It affects every single resident in Missouri.”
There are about 140,000 trade-in transactions a year, and about 6 to 10 percent are multi-vehicle, according to the DOR. The agency did not respond to a request to break the number down into dealer sales, private sales and tax refunds.
Doug Smith, the Missouri Automobile Dealers Association president, said that at the end of a good year, farmers, who can have thin profit margins, often will look to trade in old vehicles for new ones. Companies need to swap out their fleets.
Smith said his association didn’t ask for the special session.
“Frankly, we don’t have that kind of pull,” he said, with a chuckle.
Parson told reporters last week he expects the cost of the special session, which begins Sept. 9 and will run concurrently with the veto session, to be a little more than $16,000.
Critics are calling for it to be expanded or canceled.
House Democrats have asked Parson to allow lawmakers to review why more than 130,000 people, three-fourths of whom are children, have dropped off of Medicaid rolls in the last year.
In light of the coming school year, State Auditor Nicole Galloway, who has announced that she will run for governor, asked Parson to take up the issue of providing armed resource officers to every school during the special session. The measure is a suggestion made by a school safety task force appointed by Parson following school mass shootings.
Most recently, the Legislative Black Caucus requested that Parson use the special session to look at gun safety proposals after bloodshed in St. Louis and Kansas City.
“Ever since you first floated the ill-conceived notion of calling a special session for the purpose of creating a legal loophole for a handful of people to avoid paying sales taxes on vehicle purchases, the idea has been widely criticized – even by members of your own party – as unnecessary, a waste of taxpayer dollars and an abuse of the special session power,” state Rep. Crystal Quade, the top Democrat in the Missouri House, said in a statement.
“To put it bluntly, if any issue can wait until the regular legislative session in January, it’s this one.”
Much of the need for a special session could have been prevented if the Department of Revenue had not appealed the Kehlenbrinks’ win to the Supreme Court.
Questions to DOR asking why it chose to do so were answered with a statement supporting the upcoming special session.
“This issue has been a point of discussion over the years and having received various decisions by the Administrative Hearing Commission, we welcome finality to an issue that has been historically unclear to the citizens of Missouri,” Michelle Hirschman, a DOR spokeswoman, said in an emailed statement.
Kehlenbrink said he couldn’t fathom why DOR appealed the issue to the Supreme Court, if it no longer stands by its interpretation of the law.
“Can you imagine the amount of money that was spent on this thing?” Kehlenbrink said, of the court case. “Forget about the time and money I lost -- what about the state?”
The Kehlenbrinks praised the governor for fixing what they saw was a problem. Scott Kehlenbrink sent a letter to Parson, offering help with drafting a bill.
“If that means they can enforce this thing the way the legislature meant for it to be enforced, without short-changing the residents of Missouri, so be it,” Kehlenbrink said, of a legislative fix. “At least we accomplished something.”