Gate Gourmet, Inc. v. Dir. Revenue

• Decision Date: 04 October 2016
• Docket Number: No. SC 95388,SC 95388
• Citation: 504 S.W.3d 59
• Parties: GATE GOURMET, INC., Appellant, v. DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

504 S.W.3d 59

GATE GOURMET, INC., Appellant,
v.
DIRECTOR OF REVENUE, Respondent.

No. SC 95388

Supreme Court of Missouri, en banc .

Opinion issued October 4, 2016

Gate Gourmet was represented by Jeremy Abrams and Donald M. Griswold of Crowell & Moring LLP in Washington, D.C., (202) 624-2500; and Matthew J. Landwehr and Janette M. Lohman of Thompson Coburn LLP in St. Louis, (314) 552-6000.

The director was represented by Solicitor General James R. Layton of the attorney general's office in Jefferson City, (573) 751-3321; and Benjamin C. Slawson of the department of revenue in Jefferson City, (573) 751-0961.

Paul C. Wilson, Judge

The Administrative Hearing Commission determined that the sale of frozen dinners by Gate Gourmet, Inc. to airline customers at the Lambert–St. Louis International Airport should be taxed at 4 percent under section 144.020, not the 1-percent rate provided for in section 144.014.¹ Gate Gourmet seeks judicial review of this decision. This Court has jurisdiction under article V, section 3, of the Missouri Constitution. The Commission's decision is affirmed.

Background

Gate Gourmet is a global provider of catering and provisioning services for airlines and railroads. It owns and operates a facility in St. Louis County near the Lambert–St. Louis International Airport from which it sells frozen meals to various commercial airlines. Gate Gourmet filed sales tax returns with the Director of Revenue ("Director") for the taxable periods beginning January 1, 2008, and ending December 31, 2010, ("Audit Period") in which it reported sales of frozen meals to its airline customers at the reduced sales tax rate of 1 percent as provided in section 144.014.

The Director performed an audit for the Audit Period. This audit concluded that the sales of the airline meals did not qualify for the reduced sales tax rate because "[s]ales of food made to airlines for consumption during flight do not qualify for the reduced food tax rate because they are

504 S.W.3d 61

not sales of food for home consumption." Because these sales should have been taxed at 4 percent under section 144.020, the audit found that Gate Gourmet had a total sales tax liability of $292,788.19 for the Audit Period.

The Director issued 36 sales tax assessments to Gate Gourmet in accordance with the audit, which included both sales tax and statutory interest, totaling $296,357.29. Gate Gourmet paid all of the sales tax assessments under protest and filed protest affidavits with the Director for each assessment. On September 27, 2013, the Director issued a final decision denying Gate Gourmet's protests. Gate Gourmet sought review of this decision to the Commission. After an evidentiary hearing, the Commission determined that Gate Gourmet is not entitled to a refund of sales tax paid on the airline meals because the meals were not sold "for home consumption." Gate Gourmet now petitions this Court for judicial review of the Commission's decision.

The meals at issue were prepared, packaged, and sold in bulk to commercial airlines pursuant to a contract for catering services between Gate Gourmet and each airline. Under such a contract, Gate Gourmet prepares meals according to menus approved by the airline. It is responsible for purchasing the food products and supplies needed to prepare and cook these meals, which are then plated on trays owned and provided to Gate Gourmet by the airline. The meals then are flash-frozen and kept frozen until requested by the airline for a particular flight. The airline orders the number of meals required from Gate Gourmet hours before each flight. Once an order is received, Gate Gourmet loads the meals onto carts and delivers them to the plane half an hour before departure. The meals then must be heated onboard the aircraft for approximately 30 minutes before they can be served to the passengers and crew. The "Meal Preparation Standards" contained in Gate Gourmet's catering agreements state that, once a frozen meal is removed from the freezer, the meal must be used within 24 hours or discarded. Finally, Gate Gourmet removes carts from arriving aircraft, disposes of the waste, and cleans the airline's trays for use with future meals.

Analysis

Before the Commission, Gate Gourmet bore the burden of proving by a preponderance of the evidence that it was entitled to a refund. Eilian v. Dir. of Revenue , 402 S.W.3d 566, 567 (Mo.banc 2013) (citing § 621.050, RSMo 2000 ). The Commission rejected Gate Gourmet's claim and determined that the sales of frozen meals by Gate Gourmet to its airline customers should be taxed at the 4-percent rate provided in section 144.020, not the reduced 1-percent rate set forth in section 144.014. Under section 621.193, RSMo 2000, this Court must affirm the Commission's decision if:

(1) it is authorized by law; (2) it is supported by competent and substantial evidence based on the whole record; (3) mandatory procedural safeguards are not violated; and (4) it is not clearly contrary to the reasonable expectations of the legislature.

Union Elec. Co. v. Dir. of Revenue , 425 S.W.3d 118, 121 (Mo.banc 2014). Findings of fact by the Commission are binding on this Court if supported by competent and substantial evidence, but the Commission's construction of a revenue statute is reviewed de novo . Fred Weber, Inc. v. Dir. of Revenue , 452 S.W.3d 628, 629–30 (Mo.banc 2015).

Food is tangible personal property; under section 144.020, retail sales of tangible personal property are taxed at a rate of 4

504 S.W.3d 62

percent. However, under section 144.014, some—but not all—retail sales of food are taxed at a lower rate of 1 percent. Section 144.014 provides, in pertinent part:

1. ... [T]he tax levied and imposed pursuant to [section 144.020] on all retail sales of food shall be at the rate of one percent. ...

2. For the purposes of this section, the term "food" shall include only those products and types of food for which food stamps may be redeemed pursuant to the provisions of the Federal Food Stamp Program as contained in 7 U.S.C. Section 2012... and shall include food dispensed by or through vending machines. For the purpose of this section, except for vending machine sales, the term "food" shall not include food or drink sold by any establishment where the gross receipts derived from the sale of food prepared by such establishment for immediate consumption on or off the premises of the establishment constitutes more than eighty percent of the total gross receipts of that establishment, regardless of whether such prepared food is consumed on the premises of that establishment, including, but not limited to, sales of food by any restaurant, fast food restaurant, delicatessen, eating house, or cafe.

In other words, section 144.014.1 provides an exception to the 4-percent rate established in section 144.020 for retail sales of food. But this exception does not apply to all retail sales of food. Instead, the breadth of this exception is limited to "food" as defined in the first sentence of section 144.014.2, which provides that "food" means food "for which food stamps may be redeemed" under 7 U.S.C. § 2012(k). This federal statute defines "food," in relevant part, to mean "any food or food product for home consumption except alcoholic beverages, tobacco, hot foods or hot food products ready for immediate consumption ...." 7 U.S.C. § 2012(k) (emphasis added).²

Gate Gourmet concedes that its sales of frozen meals to its airline customers are taxable,³ but contends that these

504 S.W.3d 63

sales should be taxed at 1 percent because they meet the definition of "food" in section...