Champagne. Cookie “bouquets.” A bronze sculpture of the late Kansas City Chiefs founder Lamar Hunt Sr.
These were some of the dozens of line items that a Missouri Department of Revenue tax auditor red-flagged on an inventory of purchases the Chiefs made and should have paid taxes on during the $375 million renovation of Arrowhead Stadium a decade ago. Taxpayers paid for the lion’s share of the project — $250 million — through Jackson County sales taxes.
While the team eventually agreed that it didn’t deserve sales tax breaks on things like sweets and bubbly, the organization went to the mat defending its right to escape taxes on hundreds of items it bought to outfit the new Arrowhead. And the team’s landlord, the Jackson County Sports Complex Authority, agreed, having provided the team with permission to avoid the tax payments.
But on Tuesday, an obscure state panel that sorts out disputes with state agencies in Missouri said the team and sports authority were wrong. In its ruling, the Administrative Hearing Commission said the Chiefs were obliged to pay $930,000 in back taxes plus interest.
The Chiefs could have easily owed more. The commissioner who wrote the decision, Sreenivasa Rao Dandamudi, said he would have been inclined to increase that amount for taxes that should have been paid on other purchases, specifically those the Chiefs used to outfit Arrowhead’s Hall of Honor and Children’s Learning Center. But because of a classification error by the revenue department, he was unable to do so.
He said those $1.3 million in purchases should have been subject to sales tax because the primary vendor for that part of the project, Ghostfire Design Inc., is based in Missouri. However, the revenue department had assessed use taxes instead, which are taxes paid on purchases of things bought out of state.
“This commission is unable to hold the team liable for sales taxes on purchases from Ghostfire without a (tax) assessment” by the department of revenue, Dandamudi wrote in the conclusion of his 29-page decision.
The case stems from a 2014 audit in which the revenue department challenged sales tax exemptions on $23 million in purchases that the department said were “improperly claimed” between 2008 and the project’s completion in 2010. The state auditor, Mary Winkert, challenged items that she and her superiors maintained were meant to further the Chiefs own business interests rather than the public purpose of fixing up the stadium
Winkert discovered the Chiefs purchased things tax free that ranged from the picayune — leotards for cheerleaders, autographed footballs, a framed jersey of Buffalo Bills Hall of Fame running back Thurman Thomas — to more substantial assets like weight-lifting equipment, televisions and lockers for practice facilities. That’s all according to her sworn affidavit submitted as evidence in the case.
The Chiefs appealed the state’s ruling and the $1.8 million in delinquent taxes and late fees that the state said the team owed at the time.
The case dragged on for three years before a formal hearing was finally held in the fall of 2017.
At times, it was an acrimonious process. Winkert, who is now retired, said in a sworn affidavit that the Chiefs had agreed with the Department of Revenue’s conclusions on several of the items her audit scrutinized. But as she prepared to wrap up her audit, the Chiefs outside lawyers got involved and told her the team would not pay any of the audit findings, Winkert wrote in her affidavit.
Later, attorneys for the Department of Revenue sought sanctions against the Chiefs for dragging out proceedings before the Administrative Hearing Commission.
Last March, final legal briefs were entered into what by then was a voluminous public record amounting to tens of thousands of pages of legal arguments and supporting evidence.
The decision does not necessarily end the case. Even before the ruling, the expectation on both sides was that a court challenge would likely follow as the case, at least as far as the Chiefs were concerned, was based as much on principle as it was on the money at stake. The team announced Tuesday that it planned another $10 million in stadium renovations ahead of next season.
“It’s primarily boiled down to that, yes,” the Chiefs’ lead attorney on this matter, Greg Gerstner, a shareholder at the Seigfreid Bingham law firm, said on Monday, before the decision was made public Tuesday afternoon. He said Tuesday the Chiefs were likely to appeal. The revenue department has previously said it would not comment on pending litigation.
Indeed, the amount of money at stake would seem a small sum for an NFL franchise said to be worth more more than $1 billion and whose highest paid player received $16 million this past season.
The renovation of Kauffmann and Arrowhead stadiums was a partnership between the teams and Jackson County residents, who in 2006 approved a three-eighth percent sales tax to fund the majority of the work, such as wider concourses and improved seating.
The Royals and Chiefs each agreed to spend money on the extras, which in the case of the Chiefs included more suites and new administrative offices.
The Chiefs contended that, but for a few exceptions, every dime of the $125 million the team kicked in went for things that should have been exempt from sales taxes, in part because the money went into a common construction fund controlled by the sports complex authority and, therefore, were county funds.
But the revenue department argued, and the administrative hearing commission agreed, that in reality the team’s funds were walled off from taxpayers’ and under the team’s control.