AAA Laundry & Linen Supply Co. v. Dir. Revenue, SC93331.

• Citation: 425 S.W.3d 126
• Decision Date: 11 March 2014
• Docket Number: No. SC93331.,SC93331.
• Court: Missouri Supreme Court
• Parties: AAA LAUNDRY & LINEN SUPPLY CO., Respondent, v. DIRECTOR OF REVENUE, Appellant.

425 S.W.3d 126

AAA LAUNDRY & LINEN SUPPLY CO., Respondent,
v.
DIRECTOR OF REVENUE, Appellant.

No. SC93331.

Supreme Court of Missouri,
En Banc.

March 11, 2014.

[425 S.W.3d 127]

Matthew W. Geary, Thomas E. Roszak, John F. Wilcox Jr., Dysart Taylor Cotter McMonigle & Montemore PC, Kansas City, for Respondent.

General Jeremiah J. Morgan, Deputy Solicitor, Attorney General's Office, Jefferson City, for Appellant.

PAUL C. WILSON, Judge.

In Unitog Rental Services, Inc. v. Director of Revenue, 779 S.W.2d 568 (Mo. banc 1989), the Court plumbed the sudsy depths of various sales and use tax exemptions and found no application to commercial laundry operations. A quarter century later, AAA Laundry brings substantially similar claims based on substantially similar facts. Because AAA Laundry fails to distinguish or discredit Unitog, however, its claims must meet the same end.¹

I. Background

AAA Laundry periodically delivers clean uniforms and other items to its customers and picks up soiled ones, which it launders to prepare them for future use. AAA Laundry owns the uniforms, and its customers pay only a “rental” fee for their services. AAA Laundry does not pay sales or use taxes on the uniforms it purchases, but it does collect sales tax on these “rentals.”

In the course of laundering its rotating stock of uniforms, AAA Laundry consumes large quantities of various cleaning supplies (collectively referred to as “soap”). When it purchases soap from out-of-state vendors, AAA Laundry pays neither sales nor use taxes on those purchases. Similarly, AAA Laundry's operations generate a significant amount of wastewater that must be treated before it can be released into the city sewer system. In treating this wastewater, AAA Laundry consumes large quantities of chemicals. To the extent it purchases these water treatment chemicals from out-of-state vendors, AAA Laundry also pays no sales or use taxes.

Following an audit, the Department of Revenue calculated that AAA Laundry owes approximately $40,000 in use taxes (plus interest and additions) for the soap and water treatment chemicals purchased from out-of-state vendors. AAA Laundry

[425 S.W.3d 128]

sought review of these assessments before the administrative hearing commission (“AHC”), which concluded that: (1) AAA Laundry's purchases of soap are exempt from use taxes under section 144.054.2 ² relating to chemicals used in “processing” a product, and (2) its purchases of water treatment chemicals are exempt under section 144.030.2(15) relating to “machinery” and “equipment” used solely for water pollution abatement. The state sought judicial review of the AHC's decision, and this Court has exclusive jurisdiction. SeeMo. Const. art. V, § 3. The decision of the AHC is reversed as to both exemptions.

II. Analysis

In reviewing a decision of the AHC, section 621.193 provides that “the AHC is to be upheld when authorized by law and supported by competent and substantial evidence upon the record as a whole unless it is clearly contrary to the reasonable expectations of the General Assembly.” Street v. Dir. of Revenue, 361 S.W.3d 355, 357 (Mo. banc 2012). As this statute recognizes, however, no deference to the AHC's decision is appropriate unless the decision is “authorized by law,” and this Court reviews de novo all questions of statutory interpretation raised in an AHC decision. Id.

When construing sales and use tax exemptions, the Court strives to “give effect to the General Assembly's intent, using the plain and ordinary meaning of the words.” Branson Properties USA, L.P. v. Dir. of Revenue, 110 S.W.3d 824, 825–26 (Mo. banc 2003). An exemption is “strictly construed against the taxpayer,” however, and “is allowed only upon clear and unequivocal proof, and doubts are resolved against the party claiming it.” Id. at 826. Moreover, the Court does not write on a blank slate in each and every tax case, and stare decisis plays as great a role in such cases as it does in every other area of the Court's jurisprudence.³

A. The Unitog Decision

In Unitog, this Court reviewed the operations of a commercial laundry engaged in substantially the same uniform delivery, pick-up, and laundry services that AAA Laundry provides. There, this Court rejected the taxpayer's argument that its laundry equipment was exempt from sales or use taxes because laundering qualifies as “manufacturing.” After thoroughly cataloging the Court's prior decisions, Unitog holds:

The premise underlying appellant's argument is that construction of the term “manufacturing” as used in the exemption statute involves a comparison in the condition, quality, value and usefulness of the product immediately before and immediately after processing. Although some of the language taken from the cases cited above upon which appellant relies may, at first glance, seem to lend support to this premise, more careful analysis of our decisions demonstrates the fallacy of appellant's theory. In each of the cited

[425 S.W.3d 129]

cases, the processing found to constitute manufacturing produced a new and different product, dissimilar to any previous condition of the processed article.

Unitog, 779 S.W.2d at 570 (bold emphasis added). Accordingly, Unitog holds that a commercial laundry is not engaged in “manufacturing” because laundering does not “produce[ ] a new and different product, dissimilar to any previous condition of the processed article.” Id.

Like AAA Laundry in this case, the taxpayer in Unitog argued that laundering soiled uniforms “takes something practically unsuitable for any common use and changes it so as to adapt it to a common use.” Id.Unitog rejects this argument, however, and holds that laundering is merely the “repair and restoration of the original article.” Id. Based on the Court's prior decision that bonding new treads to used and useless tires was not manufacturing, Unitog holds that laundering uniforms is not manufacturing because it fails to produce “a new and different article ... having a distinctive name, character or use.” Id. (quoting State ex rel. AMF, Inc. v. Spradling, 518 S.W.2d 58, 62 (Mo.1974). Unitog) concludes this analysis by holding: “The common thread running throughout all of the cases in which we have defined “manufacturing” is the production of an article with a new use different from its original use.” Id.

Now, a quarter century later, AAA Laundry contends that it should benefit from the type of sales and use tax exemptions that were denied the taxpayer in Unitog, even though AAA Laundry concedes that it is engaged in substantially the same activity that the Court considered and found wanting in Unitog. AAA Laundry makes several attempts to distance itself from this remarkably similar precedent but these efforts, both individually and collectively, fail to justify the Court reaching a conclusion in this case so plainly at odds with Unitog. Indeed, AAA Laundry's efforts to distinguish Unitog are similar to what Lord Bowen referred to as watching “a blind man in a dark room looking for a black hat which isn't there.” See a Circuit Tramp, ‘Pie Powder’: being dust from the Law Courts collected and recollected on the Western Circuit (John Murray 1st ed.1911), at p. 25. Accordingly, the Court holds that AAA Laundry is not entitled to the use tax exemptions it seeks.

B. Section 144.054.2

AAA Laundry first tries to differentiate itself from Unitog by claiming an exemption under a different statute. The taxpayer in Unitog relied on an exemption in section 144.030.2 for “machinery and equipment ... used directly in manufacturing, mining or fabricating a product[.]” Unitog, 779 S.W.2d at 569 (emphasis in original). Here, AAA Laundry invokes an exemption for “chemicals ... used or consumed in the manufacturing, processing...