Brinker Mo. Inc v. Dir. Of Revenue

• Decision Date: 31 August 2010
• Docket Number: No. SC 90463.,SC 90463.
• Citation: 319 S.W.3d 433
• Parties: BRINKER MISSOURI, INC., Appellant,v.DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

319 S.W.3d 433

BRINKER MISSOURI, INC., Appellant,v.DIRECTOR OF REVENUE, Respondent.

No. SC 90463.

Supreme Court of Missouri En Banc.

Aug. 31, 2010.

Ann K. Covington, Edward F. Downey, Carole L. Iles, Bryan Cave LLP, Jefferson City, for Appellant.

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

LAURA DENVIR STITH, Judge.

Brinker Missouri, Inc. seeks review of an Administrative Hearing Commission decision correctly determining that Brinker's purchases of kitchen equipment and other items were not exempt from use tax pursuant to sections 144.030.2(4) and (5) ¹ and that Brinker's purchases of non-disposable tableware, cutlery, chairs, tables and similar items for use by its customers were not exempt from use tax pursuant to section 144.615(6). Brinker does not qualify for the 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. Brinker also is not entitled to claim a resale exemption under section 144.615(6) or a sale exclusion under section 144.605(13). 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. The Court rejects Brinker's argument that use of these items constitutes a sale within the meaning of Missouri law. The commission's decision is affirmed.

I. FACTUAL AND PROCEDURAL BACKGROUND

The material facts are not in dispute. Brinker Missouri, Inc., headquartered in Dallas, Texas, owns and operates 23 restaurants in Missouri, including Chili's Grill & Bar, Romano's Macaroni Grill, On the Border and Maggiano's Little Italy. Each restaurant prepares and sells food and drink to the public ² and is subject to Missouri sales and use tax where applicable.

During the relevant period-October 1, 2003, to December 31, 2004-Brinker purchased what it refers to as “kitchen machinery, equipment and parts” that it used to prepare food and drinks for its customers and to refrigerate or heat them pending serving. Although the record does not specify the specific nature of this “machinery” or “equipment,” it appears to refer to stoves, knives, refrigerators, cutting tables and similar items commonly found in kitchens, for the record states that Brinker's restaurants use these items for cutting, cooking, mixing or blending ingredients such as for salsa; baking, frying or otherwise cooking raw foods; keeping its salsa and other food and drink ingredients chilled or warm during their preparation to prevent spoilage or to hold them until there was a need to assemble or mix them into the final food item; and generally presenting food and drinks to customers in an attractive way in individual servings.

Also during the period at issue, the restaurants run by Brinker were furnished with chairs, bar stools, tables, menus, dishes, tableware, glassware, booster seats, high chairs and similar items. Customers were served meals on the plates, from which they ate while sitting at the tables and using the silverware and glasses, as in other restaurants. The cost of these items was included in each restaurant's overhead. Brinker charges the same prices for meals and drinks for dine-in consumption as for sales “to go.”

Brinker initially paid use tax for the period October 1, 2003, through December 31, 2004, but in October 2006, Brinker sought a refund of $54,034.86 of the use tax it had paid. The director denied $48,966.83 of the claim, and Brinker sought review of the denial of $44,183.93 of that amount to the commission. It argued that an exemption applied under sections 144.030.2(4) and (5) and section 144.615(6) on the kitchen equipment used to make food and prepare it for serving customers as well as on furniture, silverware, plates and similar items it used to serve its customers food. The commission denied Brinker's claim. Brinker seeks review under Mo. Const. art. V, § 3.

II. STANDARD OF REVIEW

The commission's decision shall be affirmed if: (1) it is authorized by law; (2) it is supported by competent and substantial evidence on the whole record; (3) mandatory procedural safeguards are not violated; and (4) it is not clearly contrary to the reasonable expectations of the General Assembly. § 621.193. “This Court reviews the AHC's interpretation of revenue laws de novo.” Zip Mail Services, Inc. v. Dir. of Revenue, 16 S.W.3d 588, 590 (Mo. banc 2000). The commission's factual determinations “are upheld if supported by ‘substantial evidence upon the whole record.’ ” Concord Publ'g House, Inc. v. Dir. of Revenue, 916 S.W.2d 186, 189 (Mo. banc 1996) quoting L & R Egg Co. v. Dir. of Revenue, 796 S.W.2d 624, 625 (Mo. banc 1990).

III. RESTAURANTS PREPARE RATHER THAN MANUFACTURE MEALS

Section 144.610.1 imposes a tax “for the privilege of storing, using or consuming within this state any article of tangible personal property.” Brinker admits this taxing provision applies to the items as to which it seeks a refund of use tax but argues that it is entitled to an exemption from Missouri use tax under sections 144.615(3) and 144.030.2(4) and (5) for the stoves, refrigerators, dispensers and other items it uses to prepare food and drink for its customers. Brinker bears the burden of showing that it qualifies for an exemption. Branson Props. U.S.A., L.P. v. Dir. of Revenue, 110 S.W.3d 824, 825 (Mo. banc 2003). “Exemptions from taxation are to be strictly construed against the taxpayer, and any doubt is resolved in favor of application of the tax.” Sw. Bell Tel. Co. v. Dir. of Revenue, 182 S.W.3d 226, 228 (Mo. banc 2005).

Section 144.615(3) exempts from use tax “[t]angible personal property, the sale of which ... would be exempt from or not subject to the Missouri sales tax under the provisions of subsection 2 and 3 of section 144.030.” (emphasis added).

Brinker argues that it qualifies for the exemptions provided in section 144.030.2(4) and (5), which it calls the “production exemptions.” Brinker's theory is that when it cooks and serves food, it in effect is making a product; therefore, its restaurants qualify for these “production exemptions.” It says that the commission erred in holding that these exemptions apply only to manufacturers and not to retail sale restaurants, which merely engage in preparation of food to be served to restaurant diners.

Brinker reads the exemptions too broadly. Section 144.030.2(5) exempts machinery and equipment used to expand or establish manufacturing, mining and fabricating plants from sales tax, stating:

(5) Machinery and equipment ... purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state if such machinery and equipment is used directly in manufacturing, mining, or fabricating a product which is intended to be sold ultimately for final use or consumption ...

(emphasis added). While Brinker is correct that this provision does not use the word “retail,” it does use the word “plants.” It expressly states that the machinery and equipment must be used for new or expanded plants that manufacture, mine or fabricate products intended to be sold ultimately for final use or consumption by others. Neither Chili's, Macaroni Grill, On the Border nor Maggiano's Little Italy are plants,³ and they do not fabricate, manufacture or mine products to be sold ultimately for final use or consumption. By its terms, this exemption simply does not apply to purchases of new or expanded kitchen equipment in Brinker's restaurants. The commission did not err in rejecting Brinker's request for a refund of $21,588.19 in use tax it paid on new or expanded plant machinery and $1,909.56 in use tax it paid on new or expanded plant equipment.

Brinker also argues some of its kitchen equipment qualifies for an exemption for replacement machinery, equipment and parts under section 144.030.2(4), which states:

(4) Replacement machinery, equipment, and parts and materials and supplies solely required for the installation or construction of such replacement machinery, equipment, and parts, used directly in manufacturing, mining, fabricating or producing a product which is intended to be sold ultimately for final use or consumption ...

While section 144.030.2(4) does not repeat the reference to plants expressly, it says it applies to replacement machinery, equipment and parts. As just noted, machinery, equipment and parts qualify for the exemption only if they are used to establish new or expanded manufacturing, mining or fabricating plants. “[W]ords used in proximity to one another must be considered together.” Albanna v. State Bd. of Registration for Healing Arts, 293 S.W.3d 423, 431 (Mo. banc 2009). Moreover, statutory provisions are “not read in isolation but [are] construed together, and if reasonably possible, the provisions will be harmonized with each other.” Bachtel v. Miller Cnty. Nursing Home Dist., 110 S.W.3d 799, 801 (Mo. banc 2003). “Exemptions are interpreted to give effect to the General Assembly's intent, using the plain and ordinary meaning of the words.” Branson Props. U.S.A., 110 S.W.3d at 825-26. The legislature did not intend to allow a use tax exemption for replacement machinery, equipment or parts that is broader than that for the equipment it replaces.

Brinker argues that this interpretation of the exemption is too narrow and that the words “manufacture” and “produce” should be read broadly to include preparing and cooking food. Brinker argues as though all that is required to avail itself of the exemption is simply to refer to preparing food as producing it and cooking food as manufacturing or transforming it.

Brinker's argument ignores the fact that it is seeking to take advantage of an exemption. “An exemption is allowed only upon clear and unequivocal proof, and doubts are resolved against ...