Justia.com Opinion Summary: Missouri law provides for two sales tax rates: a standard rate of four percent that applies to most retail sales, and a reduced rate of one percent that applies to some, but not all, sales of food. Krispy Kreme sought review of a decision of the Administrative Hearing Commission (AHC) that Krispy Kreme must collect tax at the four percent rate on all retail food sales at its Missouri locations. At issue on appeal was whether Krispy Kreme's product fell under the definition of "food" in Mo. Rev. Stat. 144.014.1, which establishes the lower sales tax rate for purchases of food. The Supreme Court reversed in part and affirmed in part, holding (1) the phrase "food prepared by such establishment for immediate consumption on and off the premises" in section 144.014.1 means all food that is eaten at the place of preparation and purchase, or while traveling to, or immediately upon arrival at another location without any further preparation; (2) affirmed the AHC's decision to overrule Krispy Kreme's motion for summary decision because neither party was entitled to summary decision; and (3) reversed the portion of the AHC's decision sustaining the director's motion. Remanded.
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Supreme Court of Missouri
en banc
KRISPY KREME DOUGHNUT
CORPORATION,
Appellant,
v.
DIRECTOR OF REVENUE,
STATE OF MISSOURI,
Respondent,
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No. SC91471
PETITION FOR REVIEW OF A DECISION OF THE
ADMINISTRATIVE HEARING COMMISSION
Opinion issued December 20, 2011
I.
Introduction
Missouri law provides for two sales tax rates: a standard rate of 4 percent
that applies to most retail sales, see section 144.020, RSMo 2000, and a reduced
rate of 1 percent that applies to some—but not all—sales of food, see section
144.014, RSMo Supp. 2010. Krispy Kreme Doughnut Corporation seeks review of
a decision of the Administrative Hearing Commission (“AHC”) that Krispy Kreme
must collect tax at the 4-percent rate on all retail food sales at its Missouri
locations.
The Court holds that “food prepared ... for immediate consumption on or
off the premises” includes all food that is eaten at the place of preparation and
purchase, while traveling away from the place of preparation and purchase, and
immediately upon arrival at another location without any further preparation.
The AHC’s decision is reversed in part and affirmed in part, and the case is
remanded.
II.
Facts and Procedural History
A.
Krispy Kreme’s business operations and its refund claim
At all times relevant to its claim, Krispy Kreme owned and operated four
retail stores in the state of Missouri. Most of each store’s sales consisted of donuts
that were cooked on the premises. Each store also sold other food items, including
bagged coffee beans and ground coffee, hot and cold coffee drinks, hot chocolate,
milk, bottled water, bottled juices and soft drinks. Some of these additional food
items, such as hot coffee and hot chocolate drinks, were prepared by the stores that
sold them; other food products were not prepared by the stores. 1
Krispy Kreme collects sales tax from its retail customers and regularly
remits the proceeds to the Missouri Department of Revenue. Until 2006, Krispy
Kreme collected and remitted sales tax at a rate of 4 percent for all its retail sales.
1
In addition to their retail food sales, all of the stores also cooked donuts for
wholesale distribution to other retailers, but these wholesale sales are not at issue
in this case.
But in early 2006, Krispy Kreme’s state tax manager discovered section 144.014,
which provides that
1. Notwithstanding other provisions of law to the contrary . . .
the tax levied and imposed pursuant to sections 144.010 to 144.525
and sections 144.600 to 144.746 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, as that section
now reads or as it shall be amended hereafter, 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.
This discovery prompted Krispy Kreme to seek a partial refund of taxes paid
between 2003 and 2005 totaling $324,237. It arrived at this figure by calculating
the difference between the 4-percent rate and the 1-percent rate as applied to 1)
products clearly intended for home use, such as ground coffee and coffee beans, 2)
products that its individual stores did not prepare, such as bottled water and bottled
juices, and 3) donuts that had been cooked in-store. Krispy Kreme did not seek a
refund of sales tax as to any sales of hot coffee or hot chocolate.
The director of revenue denied Krispy Kreme’s refund claim on May 16,
2006. In explanation, the director stated only, “This refund request does not
3
qualify under section 144.1902 ....” Krispy Kreme sought review by the AHC of
the director’s decision. Subsequently, Krispy Kreme reduced its refund claim to
$277,992.20 after concluding that no transactions characterized as “dine-in sales”
qualified for section 144.014’s reduced sales tax rate.
B.
Evidence presented by Krispy Kreme
During proceedings before the AHC, Krispy Kreme presented three kinds
of evidence. First, it presented evidence showing the time elapsed between the
cooking and the sale of its donuts. Based on its daily preparation cycles, Krispy
Kreme calculated that between 29.5 and 46.3 percent of its gross receipts derived
from donuts that sat in its stores for intervals of at least one hour between rolling
out of the oven or fryer and the moment of sale.
The second piece of evidence presented by Krispy Kreme related to the
quantity of donuts purchased during each transaction. Krispy Kreme added the
gross receipts derived from donuts sold by the dozen to the gross receipts derived
from the sale of products not prepared by its stores. For each of its Missouri stores,
and for each of the three years at issue, the sum of these two categories amounted
to greater than 20 percent.
Finally, Krispy Kreme presented evidence relating to where its customers
ate the donuts they had purchased. Krispy Kreme surveyed its customers over the
2
“If any tax, penalty or interest has been...erroneously or illegally collected, or has
been erroneously or illegally computed, such sum shall be credited on any taxes
then due from the person legally obligated to remit the tax...and the balance, with
interest…shall be refunded to the person legally obligated to remit the tax ....”
Section 144.190.2, RSMo 2000.
4
course of several days at each of its Missouri retail locations, asking them whether
they intended to eat their donuts at seating provided by the Krispy Kreme store,
while in transit to another location, or after arriving at another location such as a
home, office, church or park. When compiling the results of this survey, Krispy
Kreme counted purchases by each customer who planned to eat the donuts at the
store or while traveling away from the store as “immediate consumption sales”
and counted purchases by all other customers as “off-premises consumption
sales.” Krispy Kreme then extrapolated the survey results to estimate the
percentage of donut sales purchased for off-premises consumption and added this
to the percentage of gross receipts derived from food items not prepared by the
stores. The sum amounted to greater than 20 percent.
During the AHC proceedings, the director did not attack the accuracy of
any of the statistics offered by Krispy Kreme. Instead, she relied on the undisputed
fact that all of Krispy Kreme’s donuts are capable of being eaten without any
further preparation on the part of customers.
C.
The parties’ cross-motions for summary decision
In summer 2010, Krispy Kreme and the director filed cross-motions for
summary decision. 3 The AHC held that many of the products sold at Krispy
3
The parties previously had filed cross-motions for summary decision in spring
2009. In an order issued February 4, 2010, the AHC overruled both parties’
motions. For reasons that need not be recited here because the issue is not
currently before the Court, the AHC determined some evidence presented by
Krispy Kreme to be inadmissible and, consequently, held that a genuine issue of
5
Kreme’s retail locations, including its donuts, were “products [or] types of food
for which food stamps may be redeemed” and, therefore, qualified for section
144.014’s reduced sales tax rate. But it also held that more than 80 percent of
Krispy Kreme’s stores’ gross receipts derived from sales of “food prepared [by the
stores] for immediate consumption on or off the premises.” Accordingly, the AHC
sustained the director’s motion for summary decision, overruled Krispy Kreme’s
motion, and denied Krispy Kreme’s claim.
Krispy Kreme now petitions this Court for review, arguing that the AHC
misinterpreted section 144.014.2 and that it is entitled to a refund. Because this
case involves “the construction of the revenue laws of this state,” it falls within
this Court’s exclusive appellate jurisdiction. Mo. Const. art. V, sec. 3.
III.
Standard of Review
This Court affirms a decision of the AHC whenever (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. Section
621.193, RSMo 2000. “This Court reviews the AHC’s interpretation of revenue
laws de novo.” E & B Granite, Inc. v. Dir. of Revenue, 331 S.W.3d 314, 316 (Mo.
banc 2011) (citation omitted).
material fact existed as to whether any of the food products sold by Krispy Kreme
were “food for which food stamps may be redeemed.”
6
Summary decision, which is a procedure modeled on the summary
judgment procedure at the circuit court level, 4 is proper “if a party establishes facts
that entitle any party to a favorable decision and no party genuinely disputes such
facts.” 1 CSR 15-3.446(6)(A). A claimant wishing to succeed on a summary
decision motion, therefore, “must establish that there is no genuine dispute as to
those material facts upon which the claimant would have had the burden of
persuasion” at a hearing. ITT Commercial Fin. Corp. v. Mid-America Marine
Supply Corp., 854 S.W.2d 371, 381 (Mo. banc 1993) (internal quotation marks
omitted). For a defending party to succeed, however, it is enough to show “facts
that negate any one of the claimant’s elements facts” or “that the non-movant,
after...discovery[]...will not be able to produce[] evidence sufficient to allow the
trier of fact to find the existence of any one of the claimant’s elements.” Id.
IV.
Analysis
This case is controlled by the language of two statutes, section 144.020 and
section 144.014, which together create a two-fold sales tax scheme. The general
rule is found in section 144.020, which provides in pertinent part:
A tax is hereby levied and imposed upon all sellers for the privilege
of engaging in the business of selling tangible personal property or
rendering taxable service at retail in this state. The rate of tax shall
be...[u]pon every retail sale in this state of tangible personal
4
See Rule 74.04(c)(6) (“If the motion [for summary judgment], the response, the
reply and the sur-reply show that there is not genuine issue as to any material fact
that the moving party is entitled to judgment as a matter of law, the court shall
enter summary judgment forthwith.”).
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property...equivalent to four percent of the consideration paid or
charged ....”
Section 144.014.1 establishes a lower sales tax rate for purchases of “food.”
“Food” is defined in section 144.014.2 as
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, as that section now
reads or as it shall be amended hereafter, 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.
Section 144.014.2 lays out a two-part test for determining which food
products are “food” qualifying for the reduced tax rate. Part one of the test
determines whether certain food products qualify for the reduced rate, while part
two—also known as “the 80/20 test”—determines whether certain stores are
eligible to charge its customers the reduced rate. 5 This case concerns only the
80/20 test because the AHC applied the first part of the test favorably to Krispy
Kreme and the director does not dispute that portion of the AHC’s holding.
5
In Wehrenberg, Inc. v. Dir. of Revenue, __ S.W.3d __ (Mo. banc 2011)
(SC91283, decided October 4, 2011), the only other case in which this Court has
interpreted section 144.014, there was no need to reach the second part of the test.
Applying part one, the Court held that the products sold by Wehrenberg’s movie
theater concession stands were not “products [or] types of food for which food
stamps may be redeemed.” See Wehrenberg, __ S.W.3d at __.
8
Specifically, the words that must be applied are “food prepared by such
establishment for immediate consumption on and off the premises.” There is no
preexisting legal authority interpreting this phrase. The director proposes one
possible interpretation, and Krispy Kreme submits three alternatives. Each is
examined separately.
The director argues that she was entitled to summary decision based on the
theory that all food prepared by Krispy Kreme’s stores that was capable of being
consumed immediately must be counted toward the 80/20 test’s 80-percent
threshold. But if that had been the legislature’s intent, it could have said so simply,
using the language “food capable of being consumed immediately.” Instead, the
legislature used the more extensive language “prepared by such establishment for
immediate consumption on or off the premises.” This additional language also
must be given effect because “[w]hen interpreting a statute, this Court must give
meaning to every word or phrase of the legislative enactment.” State v. Moore,
303 S.W.3d 515, 520 (Mo. banc 2010) (citation omitted).
Krispy Kreme, in contrast, argues that the language utilized by the
legislature should be interpreted in relation to the actual buying and consumption
practices of its customers. It offered three studies to support its case. First, Krispy
Kreme offered evidence of the number of donuts that were purchased singly and
by the dozen. Krispy Kreme proposes an inference that single donuts are
immediately consumed and that donuts purchased by the dozen are not. Krispy
Kreme also offered evidence of the time that passed between preparation of the
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donuts and their time of sale. The argument here is that consumption more than
one hour after preparation could not be considered “immediate consumption.”
Finally, Krispy Kreme offered evidence of donuts that were consumed at the store
or on the way to the purchaser’s home. This evidence was presented on the theory
that those donuts were immediately consumed, while donuts that were consumed
after the purchaser reached his or her destination were not.
The Court rejects each interpretation proposed by Krispy Kreme as too
limited in relation to the language used by the legislature. Donuts may be
consumed immediately by the dozen if enough people are able to share the donuts
at home, at work, at meetings or even at the store. Donuts may be consumed
immediately upon purchase regardless of whether they were prepared more than or
less than an hour before purchase. Donuts that survive past the doorway of the
store and arrive intact at a home or meeting place still can be consumed
immediately upon reaching that destination.
The proper interpretation of the 80/20 test becomes apparent when all of the
words “food prepared by such establishment for immediate consumption on or off
the premises of the establishment” are given their full effect. Of particular
importance are the words “on or off the premises,” which modify “immediate
consumption,” clarifying that “immediate consumption” is not an abstract concept
(food that could be consumed immediately) but a concrete event (actual
consumption at the time of purchase or within the time necessary to travel to
another location “off the premises”). Accordingly, “food prepared...for immediate
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consumption on or off the premises” means all food that is eaten at the place of
preparation and purchase, or while traveling to, or immediately upon arrival at
another location without any further preparation.6
Neither party was entitled to summary decision because neither
demonstrated that it was entitled to a favorable decision based on a correct
understanding of the substantive law. In other words, while the parties agree on
many facts, none of the facts on which they agree are conclusive to the outcome of
the case. Cf. Martin v. City of Washington, 848 S.W.2d 487, 491 (Mo. banc 1993)
(“[T]he substantive law will identify which facts are material. Only disputes over
facts that might affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment. Factual disputes that are
irrelevant or unnecessary will not be counted.”).
V. Conclusion
Because neither party was entitled to summary decision, the AHC correctly
overruled Krispy Kreme’s motion; however, its decision to sustain the director’s
motion was not authorized by law. The Court, therefore, affirms the portion of the
AHC’s decision overruling Krispy Kreme’s motion, reverses the portion of the
AHC’s decision sustaining the director’s motion and remands the case with
6
Because the statute is capable of reasonable interpretation, we need not consider
whether the statute should be construed for or against either party as ambiguous.
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instructions to overrule the director’s motion and to conduct further proceedings in
accordance with the AHC’s rules of procedure.
______________________________________
William Ray Price, Jr., Judge
Teitelman, C.J., Russell, Breckenridge,
Fischer and Stith, JJ., and Sweeney, Sp.J., concur.
Draper, J., not participating.
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