Separateness of Third-Party Freight Transactions Exempts Them from Mississippi Use Tax

Introduction

Mississippi Department of Revenue v. Tennessee Gas Pipeline Company, LLC (No. 2023-SA-01079-SCT) is a 2025 decision of the Supreme Court of Mississippi concerning the scope of state use tax under Mississippi Code Sections 27-67-3 and -5. The litigation arose from an audit covering November 1, 2016 through November 30, 2019, in which MDOR assessed use tax on freight charges that Tennessee Gas Pipeline (Tennessee Gas) paid to an independent carrier to ship tangible personal property into Mississippi. Tennessee Gas paid use tax on the purchase price of the goods themselves but excluded the third-party freight charges from its taxable base. The Board of Tax Appeals and then the Hinds County Chancery Court granted summary judgment in favor of Tennessee Gas, holding that freight charges paid separately to a third party constitute a distinct, “closed transaction” and fall outside MDOR’s statutory power to tax. MDOR appealed, and the Supreme Court of Mississippi affirmed.

Summary of the Judgment

The Supreme Court, writing for a unanimous bench (with one justice specially concurring on the burden of proof point), applied a de novo standard to the summary judgment. It held:

MDOR bears the burden of proving its statutory authority to tax any particular transaction.
Mississippi use-tax statutes (Sections 27-67-3 and -5) must be read in harmony with Mississippi’s sales-tax statutes (e.g., Sections 27-65-3 and 27-65-17).
Both sets of statutes define “sale” or “purchase” in terms of “every closed transaction by which title to, or possession of, tangible personal property passes.”
Tennessee Gas’s purchase of pipeline materials from its vendor and its separate purchase of shipping services from an independent carrier were each “closed transactions.”
Because the freight charges were paid in a separate transaction to a third party, they do not become part of the “purchase price” of the goods for purposes of calculating use tax under Sections 27-67-3 and -5.
The chancery court’s summary judgment in favor of Tennessee Gas was therefore correct, and the Supreme Court affirmed.

Analysis

1. Precedents Cited

Castigliola v. Mississippi Department of Revenue, 162 So. 3d 795 (Miss. 2015):

Held MDOR must affirmatively establish its statutory power to tax a transaction; if it fails, the transaction is not taxable.
Applied the concept of “closed transactions” and recognized that casual or isolated purchases by persons not in the ordinary course of business fall outside the sales-tax statute.

Stone v. Rogers, 189 So. 810 (Miss. 1939):

Established that tax statutes must be construed in favor of the taxpayer when ambiguous.
Confirmed that MDOR cannot rely on implied powers to extend its taxing authority.

Buffington v. Mississippi State Tax Commission, 43 So. 3d 450 (Miss. 2010):

Clarified that plain-language interpretation applies only when statutory text is “clear and unambiguous,” and that ambiguity warrants consulting legislative intent, history, and purpose.

Mississippi Department of Revenue v. Comcast of Ga./Va., Inc., 300 So. 3d 532 (Miss. 2020):

Reiterated that tax-appeal issues are questions of law reviewed de novo.

2. Legal Reasoning

The Court’s reasoning unfolds in three principal steps:

Burden of Proof: MDOR must “establish that a particular transaction falls within its statutory power to tax.” Once that burden is met, a taxpayer may then prove any applicable exemption.
Harmonious Construction: Sections 27-67-3 and -5 (use tax) refer directly to Sections 27-65-17 and -19 (sales tax) for definitions of “purchase price” and taxing rates. The Court therefore reads both statutes together and imports key definitions from the sales-tax law into the use-tax context.
Closed-Transaction Doctrine: Both sales and use statutes define “sale” or “purchase” to include “every closed transaction by which the title to, or possession of, tangible personal property … passes.” Tennessee Gas’s purchase of goods from its vendor was one closed transaction; its separate hiring of a third-party carrier for freight was a second, independent closed transaction. The freight charges, therefore, do not fall within the statutory definition of “purchase price” under Sections 27-67-3 and -5.

3. Impact

This decision clarifies Mississippi tax law in several ways:

Taxing authorities cannot extend use-tax liability to third-party freight charges absent explicit statutory language.
Auditors and practitioners must treat freight and delivery charges paid to independent carriers as separate transactions unless the seller of goods both sells and ships the goods.
Future audits of out-of-state purchasers carrying goods into Mississippi will hinge on whether freight charges are included in a single transaction with the sale of goods or arise from a distinct, “closed” freight contract.
The decision emphasizes strict adherence to the burden-of-proof framework in tax appeals: MDOR must present clear statutory authority before imposing tax.

Complex Concepts Simplified

Use Tax vs. Sales Tax: Sales tax is imposed on in-state sales by sellers; use tax is imposed on goods purchased out-of-state but used in Mississippi. Both employ the same tax rates and rely on identical definitions of “purchase price.”
Burden of Proof: The Department of Revenue must demonstrate its legal authority to tax a transaction. If this burden is unmet, the taxpayer automatically prevails.
Closed Transaction: A completed exchange of property or services in which title or possession transfers once and for all. If freight is procured separately from the seller’s sale of goods, that freight contract is a closed transaction distinct from the goods purchase.
Harmonious Statutory Construction: Courts read sales and use-tax statutes together to ensure consistency, relying on shared definitions and cross-references.

Conclusion

The Supreme Court of Mississippi’s decision in Mississippi Department of Revenue v. Tennessee Gas Pipeline Company, LLC establishes a clear precedent: freight charges paid to third-party carriers are not part of the purchase price of tangible goods for use-tax purposes when those charges arise from a separate, closed transaction. Absent explicit legislative language to the contrary, MDOR cannot extend use tax to independent freight transactions. This ruling reinforces the fundamental principles that tax statutes are construed in favor of the taxpayer and that MDOR must shoulder the full burden of proving its taxing authority in each case.