Union Elec. Co. v. Dir. Revenue

• Decision Date: 11 March 2014
• Docket Number: No. SC 93083.,SC 93083.
• Parties: UNION ELECTRIC CO. d/b/a Ameren Missouri, Appellant, v. DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

425 S.W.3d 118

UNION ELECTRIC CO. d/b/a Ameren Missouri, Appellant,

v.DIRECTOR OF REVENUE, Respondent.

No. SC 93083.

Supreme Court of Missouri, En banc.

March 11, 2014.

Erwin O. Switzer III, Jennifer Mann Bortnick, Greensfelder, Hemker & Gale PC, St. Louis, for Ameren.

Deputy Solicitor General Jeremiah J. Morgan, Attorney General Office, Jefferson City, for the Director.

LAURA DENVIR STITH, Judge.

Union Electric Company, doing business as Ameren Missouri sought a refund for sales tax paid on electricity and natural gas energy provided to 40 Schnucks grocery stores ¹ for operating equipment such as ovens, retarders and proofers in those stores' bakery departments. Ameren alleged that the bakery departments' energy costs fell within a statutory sales tax exemption for energy used in “processing” products. See § 144.054.2.² The Director of Revenue denied the refund, and the Administrative Hearing Commission (AHC) agreed. Ameren petitions for review.

This Court affirms. Ameren seeks the benefit of an exemption from taxation. Exemptions are strictly construed, and the burden is on the taxpayer to demonstrate that the exemption applies. On similar facts in Aquila Foreign Qualifications Corporation v. Director of Revenue, 362 S.W.3d 1, 2 (Mo. banc 2012), this Court rejected the argument that cooked items sold by Casey's stores fall within the processing exemption. The Court here reaffirms Aquila 's holding that “processing,” as used in section 144.054.2, does not include in-store preparation of cooked goods for retail sale.³ The Court rejects Ameren's argument that its sale of energy to Schnucks for use in its bakery departments fits within an exemption example in a regulation promulgated pursuant to section 144.054. Even had the example applied, however, a regulation cannot expand the meaning of a statute. The AHC was correct in rejecting Ameren's exemption claim.

I. FACTUAL AND PROCEDURAL BACKGROUND

Schnucks grocery stores include “bakery departments” that sell a variety of baked goods such as cookies, doughnuts, sheet cakes, bagels, breads, stollens, Danish rolls and pies. The baked goods are not made from scratch on the premises but instead arrive at the store either fully or partially formed and frozen or in the form of frozen dough. The products are prepared for sale in a separate room behind each bakery department's retail area. Depending on the product, Schnucks employees may utilize retarders to thaw frozen dough, proofers to make dough rise, and ovens and fryers for cooking, among other pieces of equipment, to finalize preparation of the baked goods for retail sale in the bakery department. Schnucks purchases electricity and natural gas from Ameren to operate this equipment.

Section 144.054.2, enacted in 2007, exempts from sales tax “electrical energy and gas ... used or consumed in the manufacturing, processing, compounding, mining, or producing of any product.” After meeting with an energy consultant, Schnucks requested that Ameren apply for a refund of the sales tax paid on energy purchased for the bakery departments ⁴ between the statute's effective date of August 28, 2007, and April 30, 2009. Ameren applied for the refund in May 2009. The Director denied the refund request, and Ameren sought review by the AHC, which affirmed. The AHC found that Schnucks' use of energy to thaw, retard, proof, fry and otherwise prepare the baked goods for sale and consumption did not constitute “processing” of products but rather was part of cooking or preparing the baked goods for retail sale and, therefore, did not fall within the exemption.

In so finding, the AHC rejected Ameren's argument that, even if Schnucks' preparation of baked goods does not constitute “processing” under the statute, it still should be exempt from taxation because the Schnucks bakery departments fit within an example referencing bakeries set out in the Director's regulation implementing section 144.054.2. See12 CSR 10–110.621(4)( O ). The AHC found that a Schnucks store's bakery department did qualify as a “bakery” as that word is used in the regulatory example in question. But it also found the example to be in conflict with this Court's interpretation of section 144.054.2 in Aquila and, so, it did not provide a basis on which to grant the exemption. Ameren filed a petition for review in this Court. Because this case involves the construction of a revenue statute, this Court has exclusive appellate jurisdiction pursuant to article V, section 3 of the Missouri Constitution.

II. STANDARD OF REVIEW

A decision of the AHC will be affirmed 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. § 621.193; Brinker Missouri, Inc. v. Dir. of Revenue, 319 S.W.3d 433, 435 (Mo. banc 2010). The Court reviews the AHC's interpretation of revenue statutes de novo. Brinker, 319 S.W.3d at 435,quoting Zip Mail Servs. Inc. v. Dir. of Revenue, 16 S.W.3d 588, 590 (Mo. banc 2000). Factual determinations will be upheld if supported by substantial evidence based on review of the whole record. Brinker, 319 S.W.3d at 435 (internal citations omitted).

III. AMEREN DID NOT SHOW THAT SCHNUCKS BAKERY DEPARTMENTS ENGAGE IN “PROCESSING” UNDER SECTION 144.054.2

The question before this Court is whether Ameren has shown that the energypurchased to operate Schnucks' bakery departments qualifies for section 144.054.2's tax exemption on certain energy purchases. Section 144.054.2 in relevant part exempts from sales and use tax:

[E]lectrical energy and gas, whether natural, artificial, or propane, water, coal, and energy sources, chemicals, machinery, equipment, and materials used or consumed in the manufacturing, processing, compounding, mining, or producing of any product....

§ 144.054.2.

“Processing” is defined in section 144.054.1(1) as “any mode of treatment, act, or series of acts performed upon materials to transform or reduce them to a different state or thing.” Ameren argues that Schnucks' food preparation activities constitute “processing” for purposes of section 144.054.2 because Schnucks' bakery departments transform the raw frozen dough that they receive into edible baked goods by using energy and equipment to defrost the dough, allow it to rise, and bake it. While the Director says what Schnucks does is merely called cooking, Ameren argues these actions transform raw products into a different state and, therefore, come within the definition of “processing.” Ameren further argues that, because Aquila found the definition of “processing” as used in the statute to be ambiguous, this Court should read the term broadly.

The AHC's interpretation of a revenue statute is a matter of law that this Court reviews de novo. Aquila, 362 S.W.3d at 3. Here, the issue is the meaning of a tax exemption. The taxpayer has the burden to demonstrate that the exemption applies. Id.;Brinker, 319 S.W.3d at 436. “An exemption is allowed only upon clear and unequivocal proof, and doubts are resolved against the party claiming it.” Brinker, 319 S.W.3d at 437. An exemption, therefore, will be construed narrowly. Id.

In determining the meaning of a word in a statute, the Court will not look at any one portion of the statute in isolation. Rather, it will look at the word's usage in the context of the entire statute to determine its plain meaning. Aquila, 362 S.W.3d at 4;BASF Corp. v. Dir. of Revenue, 392 S.W.3d 438, 444 (Mo. banc 2012); see also Brinker, 319 S.W.3d at 437 (“[S]tatutory provisions are ‘not read in isolation but [are] construed together, and if reasonably possible, the provisions will be harmonized with each other’ ... Exemptions are interpreted to give effect to the General Assembly's intent, using the plain and ordinary meaning of the words”) (internal citations omitted).

In this case, because the word at issue appears in the statute within a list of words, the Court will apply the principle of statutory construction known as noscitur a sociis—a word is known by the company it keeps. Aquila, 362 S.W.3d at 5. Under this principle, a court looks to the other words listed in a statutory provision to help it discern which of multiple possible meanings the legislature intended. Albanna v. State Bd. of Registration for Healing Arts, 293 S.W.3d 423, 431 (Mo. banc 2009). If the meaning of a word is unclear from consideration of the statute alone, a court will interpret the meaning of the statute in pari materia with other statutes dealing with the same or similar subject matter. BASF, 392 S.W.3d at 444.

The statutory construction process is simplified here because Aquila already has determined the meaning of the term “processing” as used in section 144.054.2 in the course of rejecting a very similar argument on very similar facts. In that case, Casey's General Stores, through its utility provider, filed for a sales tax refund on electricity purchased for two Casey's locations. Aquila argued that Casey's food preparation operations, which included in-store cooking and preparation of pizza dough and cake doughnuts for retail sale, fell within the “processing” exemption of section 144.054.2. Aquila, 362 S.W.3d at 2–3.

This Court agreed with Aquila that section 144.054.1(1)'s definition of “processing” as “any mode of treatment, act, or series of acts performed upon materials to transform or reduce them to a different state or thing” creates some ambiguity as to the full range of activities that are intended to be included within the meaning of that word. Id. at 3. But, the Court held, that did not mean “processing” included cooking and finishing the preparation of food products for retail sale in the Casey's stores. Rather, the Court looked to the principles of statutory construction just discussed to construe the ambiguous term.

Applying the principle set out in Pollard v....