Hobby Lobby Sues Tennessee Over $160K in Taxes and the Definition of 'Directly'

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Hobby Lobby, last seen arguing before the Supreme Court that the contraceptive mandate in the Affordable Care Act violated its religious freedom, has sued the state of Tennessee over a $163,827.91 tax bill it doesn't think it should have to pay.

Its argument comes down to the definition of the word "directly." As The Tennessean reports, the state's tax code only allows certain organizations' purchases to be exempt from sales tax if those purchases are made "directly to the exempt institution, organization or historical property."

Hobby Lobby, which has 19 locations in Tennessee, claimed that some purchases were exempt from sales taxes, even though those purchases were made by personal checks rather than a check or credit card from the tax-exempt organization they were supposedly for. 

Because the purchases were made, Hobby Lobby contends, to "directly" benefit a tax-exempt organization even though that organization didn't buy them, the exemption should still apply. The Tennessee Department of Revenue, which audited Hobby Lobby last November, did not agree. It found that Hobby Lobby owed $136,197.51 plus $27,630.40 in interest. 

"The statute or related regulations do not elaborate upon the meaning of 'directly,'" Hobby Lobby said in its appeal of the Tennessee Department of Revenue's decision. 

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The appeal was denied because, as the official who ruled in the Department of Revenue's favor wrote: "'directly' is not an ambiguous term." She also noted that it's very clearly spelled out in the state's tax laws that personal checks cannot be used to purchase items for tax-exempt organizations.

This shouldn't exactly come as a surprise to Hobby Lobby, since it says in its own FAQ:

Please also note, all tax exempt orders must be placed using a company credit card or a business PayPal account. We are not able to issue a credit for tax if the order is placed with a personal credit card.

Yet the company sued Tennessee last week anyway.

If this doesn't work, perhaps Hobby Lobby will try to claim that paying sales tax is against its founder's religion.


This article is from the archive of our partner The Wire.