Columbia Athletic Club v. Director of Revenue

• Decision Date: 27 January 1998
• Docket Number: No. 80074,80074
• Parties: COLUMBIA ATHLETIC CLUB, Appellant, v. DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

Page 806

961 S.W.2d 806

COLUMBIA ATHLETIC CLUB, Appellant, v. DIRECTOR OF REVENUE, Respondent.

No. 80074.

Supreme Court of Missouri En Banc.

Jan. 27, 1998.

Carole lewis Ilse, John P. Barrie, Juan D. Keller, St. Louis, for Appellant.

Jeremiah W. (Jay) Nixon, Atty. Gen., Evan J. Buchheim, Asst. Atty. Gen., Jefferson City, for Respondent.

LIMBAUGH, Judge.

This case involves a dispute over the assessment of sales tax under section 144.020, RSMo, ¹ for basic membership dues at a physical fitness center. Section 144.020.1(2) provides that a sales tax is due for "the amount paid for admission and seating accommodations, or fees paid to, or in any place of amusement, entertainment or recreation, games and athletic events." The sole issue for determination in this case is whether Appellant's fitness center is a "place of amusement, entertainment or recreation, games and athletic events." The Administrative Hearing Commission (AHC) decided this issue against the appellant, which then appealed to this Court. Because this case involves construction of the revenue laws, this Court has jurisdiction. Mo. Const. art. V, sec. 3. The decision of the AHC is reversed and remanded for further proceedings consistent with this opinion.

I.

Columbia Athletic Club ("Appellant") is a corporation that operates a fitness center under the name of "Gold's Gym" in Columbia, Missouri. The fitness center offers facilities for noncompetitive activities including aerobics, strength training, cardiovascular training, and nutrition/weight control training, but it does not offer facilities for tennis, racquetball, basketball, or swimming. The fitness center is located in a four story building with equipment for different activities located on each floor. The top floor contains circuit training equipment that is designed to strengthen different muscle groups, as well as equipment intended to improve the body's cardiovascular system. The third floor has strength training equipment similar to that available on the top floor, but the equipment is not arranged in organized circuits. The third floor also has an area for use of free weights. The second floor contains the front desk, pro shop, membership offices, and an aerobics center in which various aerobics classes are held. The bottom floor contains locker rooms, child care facilities, offices for a nutritional program called APEX, and tanning rooms. Each of the locker rooms contains a hot tub, sauna, cold tub and showers.

Appellant's fitness center has a certified training staff that assists members in implementing their individual exercise programs. New members typically meet with a membership coordinator who completes a personal performance analysis of the member and helps the member develop an exercise plan that is formulated to meet that member's specific goals and objectives. The training staff is also available to assist members during their workouts and they offer encouragement and motivation to members to increase the frequency and intensity of their workouts.

Appellant's fitness center is designed to emphasize five primary components of fitness: muscular strength, muscular endurance, flexibility, cardiovascular fitness, and body composition. Appellant's stated philosophy in operating the fitness center is to emphasize health and personal improvement through exercise. At least a substantial percentage of members are referred to the fitness center by a physician for health reasons, and some members even receive reimbursement from their health insurers for the cost of the program.

The fitness center does not operate as a social club. Instead, members generally work out on an individual basis in a noncompetitive atmosphere. The fitness center does play upbeat background music in an attempt to motivate its members and provides television monitors in the cardiovascular area to occupy members during long-term stationary exercises. However, the music and television monitors constitute only a minor component of the entire fitness center. The fitness center's major focus is on improving health through physical exercise.

Membership in Appellant's fitness center can be purchased for any period from one month to one year. The basic membership dues entitle a member to access to the facilities and equipment, including aerobics classes and the assistance of the staff. Members pay extra fees for personal trainers, tanning rooms, towel service, child care, and participation in the APEX nutritional program.

The current dispute began when Appellant received a letter from the Department of Revenue stating that the Department intended to collect sales tax on health club memberships. The Director of Revenue ("Director") conducted an audit of Appellant's fitness center for the tax period from April 1991 through March 1994 and issued assessments for that period. On May 1, 1995, Appellant entered an agreement with the Director providing that Appellant could amend its return for November 1994 and pay sales tax, additions, and interest under protest. Per the agreement, Appellant filed a refund claim for the taxes paid under protest, and the Director issued a decision denying the claim. The parties also agreed that Appellant could appeal the Director's decision to the AHC, and that the AHC's decision would be binding as to the audit period and all subsequent periods up to the date of the AHC's decision. The AHC held that Appellant's fitness center was a place of recreation and, consequently, was subject to sales tax for membership fees under section 144.020.1(2). This case is a petition for review of the AHC's decision.

II.

The language of section 144.020.1(2) indicates that a facility is subject to sales tax when three elements are present: (1) an amount is paid for admission and seating, or fees are paid; (2) the amount or fee is paid to or in a "place"; and (3) the place is one "of amusement, entertainment or recreation, games and athletic events." The first and second elements are not at issue in this case, and the sole question is whether Appellant's fitness center is a "place of amusement, entertainment or recreation, games and athletic events." Although the terms in this clause are of common usage, one must look closely to understand the meaning of the clause as a whole. ² The use of conjunctions and placement of commas within the clause are critical. As a matter of proper grammar, the five terms--amusement, entertainment, recreation, games and athletic events--are effectively grouped together in three categories: 1) places of amusement; 2) places of entertainment; and 3) places of recreation, games and athletic events. It is uncontested that Appellant's fitness center is neither a place of amusement nor a place of entertainment. As to the third category, the use of the conjunction "and" requires that all three elements--recreation, games and athletic events--must be present, and it is not sufficient to determine only whether the facility is a place of recreation. Because the fitness center does not offer games or athletic events, it cannot be characterized as a place of recreation, games and athletic events.

In the several prior cases interpreting this clause, this Court has never focused on the manner in which the conjunctions and commas are used. Instead, the words "amusement, entertainment or recreation" have been grouped as a single category and generally treated synonymously without regard to the remaining words "games" and "athletic events." See Moon Shadow, Inc. v. Director of Revenue, 945 S.W.2d 436, 437 (Mo. banc 1997) (referring interchangeably to "place[s] of amusement, entertainment or recreation" and to "place[s] of amusement"); High Adventure Game Ranch, Inc. v. Director of Revenue, 824 S.W.2d 905, 906 (Mo. banc 1992) (referring to "place[s] of amusement, entertainment or recreation"); Fostaire Harbor, Inc. v. Director of Revenue, 679 S.W.2d 272, 273 (Mo. banc 1984) (referring interchangeably to "place[s] of amusement, entertainment or recreation" and to "place[s] of amusement"); L & R Distributing Co. v. Dept. of Revenue, 648 S.W.2d 91, 94-95 (Mo. banc 1983) ("L & R Distributing II ") (referring to "places of amusement, etc."); Spudich v. Director of Revenue, 745 S.W.2d 677 (Mo. banc 1988) (referring to the terms "amusement," "entertainment" and "recreation," and focusing on the term "amusement"); Blue Springs Bowl v. Spradling, 551 S.W.2d 596, 598-99 (Mo. banc 1977) (referring interchangeably to "place[s] of amusement, entertainment or recreation" and to "place[s] of amusement, etc."); L & R Distributing, Inc. v. Dept. of Revenue, 529 S.W.2d 375, 378 (Mo. banc 1975) ("L & R Distributing I ") (referring interchangeably to "place[s] of amusement or entertainment," to "place[s] of amusement," and to "place[s] of amusement, etc."). The analysis used in these cases further indicates a tendency to mix and match these terms. Moon Shadow 945 S.W.2d at 437 (concluding that a building was not a "place of amusement" because it did not offer "amusement, entertainment or recreation activities"); Fostaire, 679 S.W.2d at 273 (concluding that helicopter tours were "places of amusement" because they were "entertaining and recreational"). None of these cases have focused solely on the meaning of the term "recreation." That the words "games and athletic events" have been ignored can possibly be explained by the fact that no prior case involved a place where games and athletic events were offered. In any event, the word "recreation" is more properly viewed as the first word in the separate category of "recreation, games and athletic events."

Arguably, the statute is ambiguous despite its grammatical structure because "recreation" is in a sense synonymous with or at least overlaps with the words "amusement" and "entertainment." In the internal context of the clause, the words fit well together. On the other hand, "recreation" fits just as well with "games and athletic events," which are, in...