Hobby Lobby wants to know exactly what the word "directly" means.
A quibble over the wording in Tennessee's tax code has the Oklahoma City-based hobby business suing the state over $163,827.91 in unpaid taxes. At issue is whether tax-exempt purchases can be made with personal checks or whether they have to be made "directly" by checks cut by an eligible organization.
Hobby Lobby filed suit last week to have a Davidson County Chancery Court judge decide.
The Tennessee Department of Revenue declined to discuss the lawsuit Tuesday, saying the agency doesn't comment on ongoing litigation. The attorney for Hobby Lobby couldn't be reached.
A revenue department audit in November concluded Hobby Lobby owed the state $136,197.51 in sales tax on purchases, plus interest. The agency said those purchases were made with personal funds instead of funds from tax-exempt organizations. According to state law, such sales are only exempt when they go "directly to the exempt institution, organization or historical property."
Hobby Lobby appealed the decision, saying it's unclear what that even means. In a Feb. 12 letter, lawyers for the firm wrote that "the statute or related regulations do not elaborate upon the meaning of 'directly.'"
"Although payment sources other than organization checks and credit cards may have been used to purchase items, it is reasonable to assume that the purchase was to be used 'directly' for the benefit of the exempt organization and not for personal use," the letter continued.
Patricia Kussmann, the administrative hearing officer who ruled in the state's favor, wrote in response that anytime a tax exemption is requested on a purchase, a certificate spells out that personal funds can't be used.
"'Directly' is not an ambiguous term," she wrote.