The Missouri Supreme Court ruled this week that restaurants in the state cannot claim manufacturer-like use tax deductions for the purchase of food and beverage preparation and holding equipment.
The court also ruled that restaurants may not claim a resale exemption for the purchase of dining room furnishings and serviceware used by their patrons.
Dallas-based Brinker International, which has 23 casual-dining restaurants in Missouri, had attempted to claim the manufacturer exemption for equipment and the resellers’ exemption for dining room purchases.
The state’s high court based its equipment-related decision on the determination that restaurants do not manufacture food, but rather prepare and serve it. Therefore, they cannot claim the same tax breaks accorded to manufacturing or processing companies.
The court ruled against Brinker in a six to one decision.
A Brinker representatives declined to comment at presstime, saying the ruling had only been handed down the day before.
Brinker owns the Chili’s Grill & Bar and Maggiano’s Little Italy casual-dining chains.
The ruling has immediate consequences beyond those for Brinker as officials of Missouri’s Department of Revenue said 28 tax-refund claims based on arguments similar to those made by Brinker are pending.
Ted Farnen, DOR director of communications, could not immediately provide a total dollar amount for the refunds being requested or provide the names of the companies making the claims.
He added that appeals of denials of tax exemptions based on claims similar to those made by Brinker are “fairly new” in the state.
Mike Donohue, vice president of Media Relations for the National Restaurant Association in Washington, D.C., said, “We could not recall other such cases and will be monitoring to see if there are similar issues occurring in other states.”
According to documents filed before the Missouri Supreme Court in Jefferson City, the case hinged on Brinker’s appeal of a ruling against its Brinker Missouri Inc. division by Missouri’s Administrative Hearing Commission. An attempt by Brinker to claim manufacturer and reseller-like exemptions from the state’s use tax was denied by the AHC, prompting the company’s appeal to the Missouri Supreme Court.
“Brinker does not qualify for the [manufacturer] exemptions under sections 144.030.2(4) and (5) because its restaurants are not ‘plants’ and because it prepares and serves food rather than manufactures a product,” wrote judge Laura Denvir Stith, the author of the written ruling.
Stith also stated that Brinker is not entitled to claim a resale exemption. “It neither permanently transfers nor charges its customers additional consideration for giving them the privilege of sitting in a chair and using silverware to eat their meals on a dish or drink their soup from a bowl or tea in a glass while sitting at a table,” she wrote.
Dissenting from the majority was chief justice William Ray Price Jr. He wrote that a manufacturer’s tax exemption for equipment was indeed appropriate because the code indicates such an exemption is appropriate in the purchase of equipment used to produce “a product which is intended to be sold ultimately for final use or consumption.”
He also noted that one definition of a plant is that it is a place where, among other things, one carries out “a trade,” and added, “cooking and preparing food is a trade.”
Price also said, “Cooking is manufacturing under the [state] statute” as “there can be no valid distinction between a facility that prepares food for wholesale consumption and one that prepares food for retail consumption.”
The Missouri Legislature enacted exemptions in the tax code to “encourage the production of items ultimately subject to sales tax and to encourage the location and expansion of industry in Missouri,” Price wrote. “By applying an unduly narrow construction to this exemption, the majority [of the court] frustrates the legislative intent of creating jobs and nurturing small business in Missouri.”
Contact Alan Liddle at [email protected].
