Alabama Department of Revenue v. Logan's Roadhouse, Inc.

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REL: 05/13/2011 Notice: This o p i n i o n i s s u b j e c t t o formal r e v i s i o n b e f o r e p u b l i c a t i o n i n t h e advance s h e e t s o f Southern R e p o r t e r . R e a d e r s a r e r e q u e s t e d t o n o t i f y t h e R e p o r t e r o f D e c i s i o n s , Alabama A p p e l l a t e C o u r t s , 300 D e x t e r A v e n u e , M o n t g o m e r y , A l a b a m a 3 6 1 0 4 - 3 7 4 1 ((334) 2 2 9 - 0 6 4 9 ) , o f a n y t y p o g r a p h i c a l o r o t h e r e r r o r s , i n o r d e r t h a t c o r r e c t i o n s may b e made b e f o r e t h e o p i n i o n i s p r i n t e d i n Southern R e p o r t e r . ALABAMA COURT OF CIVIL APPEALS OCTOBER TERM, 2010-2011 2090753 Alabama Department o f Revenue v. Logan's Roadhouse, Inc. Appeal from J e f f e r s o n C i r c u i t Court (CV-09-1930) PITTMAN, J u d g e . This from a judgment o f t h e J e f f e r s o n C i r c u i t C o u r t r e v e r s i n g an o r d e r i s s u e d b y an a d m i n i s t r a t i v e - law judge appeal of i s taken t h e Alabama Department o f Revenue ( " t h e D e p a r t m e n t " ) t h a t u p h e l d an a s s e s s m e n t o f s t a t e a n d c e r t a i n 2090753 local 1 use taxes against Logan's Roadhouse, t a x p a y e r " ) , as t o i t s w h o l e s a l e p u r c h a s e Inc. of peanuts ("the consumed by c u s t o m e r s a t s e v e r a l r e s t a u r a n t s o p e r a t e d by t h e t a x p a y e r in The Alabama. c a s e came b e f o r e t h e t r i a l t a x p a y e r , p u r s u a n t t o A l a . Code 1975, to t h a t c o u r t from the Department's de court after § 40-2A-9(g), novo i n t h e manner c o n t e m p l a t e d by appealed o r d e r and s o u g h t a the statute. the trial In i t s j u d g m e n t , e n t e r e d a f t e r an o r e t e n u s p r o c e e d i n g a t w h i c h trial the c o u r t r e c e i v e d e v i d e n t i a r y e x h i b i t s and h e a r d t e s t i m o n y f r o m t h e t a x p a y e r ' s r e g i o n a l manager, t h e t r i a l s u m m a r i z e d t h e m a t e r i a l q u e s t i o n t o be court aptly answered: "The i s s u e p r e s e n t e d f o r t h e C o u r t ' s d e c i s i o n i s w h e t h e r ... t h e t a x p a y e r [ ] i s l i a b l e t o t h e S t a t e o f A l a b a m a f o r t h e payment o f u s e t a x when i t p u r c h a s e s peanuts from w h o l e s a l e s u p p l i e r s . I f the taxpayer s e l l s t h e peanuts t o i t s customers, then t h e use t a x i s n o t due on t h e w h o l e s a l e t r a n s a c t i o n , because t h e r e i s an a p p l i c a b l e s a l e s t a x . I f [ t h e t a x p a y e r ] does n o t r e s e l l t h e p e a n u t s t o i t s c u s t o m e r s , t h e n t h e u s e t a x i s due t o be p a i d . " Our r e v i e w i s g o v e r n e d by t h e f o l l o w i n g "'When presumption principles: ore tenus evidence i s presented, a o f c o r r e c t n e s s e x i s t s as t o t h e t r i a l T h e p a r t i e s do n o t c o n t e n d t h a t t h e u s e - t a x o r d i n a n c e s of t h e l o c a l t a x i n g j u r i s d i c t i o n ( t h e C i t y of O x f o r d ) d i f f e r i n any m a t e r i a l way f r o m t h e u s e - t a x s t a t u t e s c o n t a i n e d i n t h e A l a b a m a Code. 1 2 2090753 c o u r t ' s f i n d i n g s on i s s u e s o f f a c t ; i t s j u d g m e n t based on these f i n d i n g s of fact will not be d i s t u r b e d unless i t i s c l e a r l y erroneous, without s u p p o r t i n g evidence, m a n i f e s t l y u n j u s t , or a g a i n s t the great weight of the evidence. ... Moreover, "under the ore tenus rule, the trial court's j u d g m e n t and a l l i m p l i c i t f i n d i n g s n e c e s s a r y to support i t c a r r y a presumption of correctness." However, when t h e t r i a l c o u r t i m p r o p e r l y a p p l i e s t h e l a w t o f a c t s , no p r e s u m p t i o n o f c o r r e c t n e s s e x i s t s as t o t h e t r i a l c o u r t ' s j u d g m e n t . " Q u e s t i o n s o f l a w are not subject to the ore tenus standard of review." A trial c o u r t ' s c o n c l u s i o n s on legal issues c a r r y no presumption of correctness on appeal. T h i s c o u r t r e v i e w s the a p p l i c a t i o n of law t o f a c t s de n o v o . ' " HLH Constructors, 680, I n c . v. S t a t e Dep't o f Revenue, 902 683-84 ( A l a . C i v . App. 2004) ( c i t a t i o n s o m i t t e d ; C i t y o f P r a t t v i l l e v. P o s t , App. 2002), q u o t i n g The taxpayer Alabama manager operates and other So. i n turn other evidentiary taxpayer's 831 exhibits at nearby consume l u n c h and d i n n e r e n t r e e s fish, and desserts. to shellfish as well trial testimony indicate of the that the service" restaurants at which diners c o n s i s t i n g of beef, as quoting 627-28 ( A l a . C i v . the "full states 2d authorities). and presented a number o f 2d 622, So. salads, in typically chicken, appetizers, and Most, i f not a l l , of the e d i b l e f o o d s t u f f s p r o v i d e d customers of through wholesale the taxpayer's restaurants are acquired purchases from a s i n g l e c e n t r a l d i s t r i b u t i o n 3 2090753 c e n t e r o p e r a t e d by Performance Food Groups. The taxpayer's manager t e s t i f i e d t h a t t h e t a x p a y e r p a y s no s a l e s t a x on purchases; rather, a sales c o n s u m e r s upon t h e i r The taxpayer's t a x i s p a i d on p r e p a r e d m e a l s r e c e i p t of a b i l l manager such specifically by a t t h e end o f a m e a l . testified that certain a d d i t i o n a l e d i b l e i t e m s , s u c h as d i n n e r r o l l s and b u t t e r and "tabletop" mustard items and separately listings, (including spices such identified but are condiments as or salt priced similarly such as ketchup and pepper), the r e s t a u r a n t ' s menu in a c q u i r e d by the taxpayer wholesale purchases and a r e p r o v i d e d t o c u s t o m e r s them; the according deemed sold providing prices to those charged to manager, customers items by because to the those each the customer taxpayer for items are and who are via desire similarly incremental cost i s included in entree not items. of the The t a x p a y e r ' s c l a s s i f i c a t i o n o f t h o s e i t e m s as s u b j e c t s o f r e t a i l s a l e s t o customers has n o t b e e n c h a l l e n g e d by t h e D e p a r t m e n t i n i t s a u d i t or i n the l i t i g a t i o n s p r i n g i n g Most p e r t i n e n t t o t h i s certain theme, other case i s t h a t the taxpayer, restaurant operators provides quantities of 4 therefrom. espousing peanuts to a like "roadhouse" i t s customers by 2090753 means o f r e c e p t a c l e s l o c a t e d i n r e s t a u r a n t e n t r y w a y s , a t d r i n k bars, a n d on d i n i n g tables. Those p e a n u t s , like the other e d i b l e items purchased by t h e taxpayer f o r consumption i n i t s restaurants, are acquired from i t s p r e f e r r e d w h o l e s a l e r . i s u n d i s p u t e d t h a t no s a l e s tax i s paid w h i c h a r e deemed w h o l e s a l e s a l e s . other edible items, peanuts on t h o s e Also, like do n o t a p p e a r restaurant customers. evidence to the t r i a l document that However, court, the the taxpayer's separately distributed to taxpayer i n t h e form was n o t p r e s e n t e d purchases, as a p r i c e d i t e m i n t h e p r i n t e d menu p r i c e l i s t i n g s to the It presented o f a "menu m i x " administrative-law j u d g e , t h a t j u s t as 10 c e n t s ' w o r t h o f r o l l s a n d b u t t e r a n d 6 cents' worth taxpayer's entree entrees, served consumption obtained, of tabletop items are p r i c e d 9 cents i s similarly by t h e taxpayer by restaurant according i n t o each o f t h e priced into to o f f s e t the cost customers. That every o f peanut figure was t o t h e t a x p a y e r ' s manager, b y d i v i d i n g t h e e n t i r e g r o s s q u a n t i t y o f peanuts a c q u i r e d by t h e t a x p a y e r and dividing i t by the "guest restaurants. 5 count" at the taxpayer's 2090753 Based upon that and other evidence, determined that t h e t a x p a y e r was the trial indeed s e l l i n g court peanuts to c u s t o m e r s a t i t s r e s t a u r a n t s so as t o w a r r a n t t h e t a x p a y e r ' s treatment of its transactions. peanut Compare (including "sale[s] wholesalers to of licensed purchases Ala. Code tangible retail as wholesale-sales 1975, § personal merchants ... 40-23-1(9)a. property for resale" w i t h i n d e f i n i t i o n o f " w h o l e s a l e s a l e " exempted from s a l e s u s e t a x a t i o n ) , w i t h § 40-23-1(10) "[a]ll sales (defining " r e t a i l sale" of t a n g i b l e personal property except those d e f i n e d as w h o l e s a l e s a l e s " ) . The trial and as ... court stated i n i t s judgment: "[The menu m i x ] g r a p h i c a l l y shows t h a t t h e c o s t of peanuts i s i n c l u d e d i n t h e c o s t o f a meal. The e v i d e n c e show t h a t [ t h e t a x p a y e r ] a l l o c a t e s $.09 t o each meal f o r p e a n u t s . W h i l e peanuts a r e not l i s t e d on t h e c h e c k p a i d f o r by t h e c u s t o m e r , t h e c u s t o m e r p a y s f o r them and p a y s a t a x on them, w h e t h e r he knows i t o r n o t . A charge f o r the peanuts i s i n c l u d e d i n the b i l l p a i d by the customer. " I n w e i g h i n g t h e a r g u m e n t s f o r and a g a i n s t t h i s i s s u e , t h e C o u r t s e e s no l e g a l d i f f e r e n c e i n t h e r o a s t e d p e a n u t s s e r v e d b y [ t h e t a x p a y e r ] f r o m many i t e m s w h i c h a c u s t o m e r r e c e i v e s when he b u y s a m e a l a t a r e s t a u r a n t ; c h i p s and s a l s a , b r e a d and b u t t e r , o l i v e o i l , s a l t and p e p p e r , k e t c h u p , m u s t a r d , i c e , etc. None o f t h e s e i t e m s a r e consumed by the r e s t a u r a n t owner n o r i s t h e i t e m g i v e n away g r a t i s . A f t e r a l l , t h e r e s t a u r a n t e u r i s i n b u s i n e s s t o make 6 by 2090753 a profit. The c o s t o f t h e s e i t e m s i s i n c l u d e d i n t h e c u s t o m e r s ' b i l l , even t h o u g h i t e m i z e d a n d t h e c u s t o m e r may n o t be aware The p e a n u t s a r e s o l d t o t h e c u s t o m e r as a s a l e w h e t h e r t h e c u s t o m e r e a t s them o r n o t . " In attacking the t r i a l relies almost e x c l u s i v e l y c o u r t ' s judgment, simply i t not of i t . retail t h e Department upon t h e r e a s o n i n g a d o p t e d b y t h e a d m i n i s t r a t i v e - l a w judge i n t h e order reviewed by the t r i a l court ( t o t h e e x t e n t o f d e v o t i n g t h e b u l k o f 8 pages Department's 13-page argument to quoting the order). essence, t h e r e a s o n i n g adopted by t h e Department peanuts consumed by the customers at of the the In i s that the taxpayer's r e s t a u r a n t s c a n n o t p r o p e r l y be deemed t o have b e e n " r e s o l d " t o them i f t h e y a r e n o t s e p a r a t e l y p r i c e d on t h e menu p r i c e list p r o v i d e d t o c u s t o m e r s o r a r e n o t i n t e g r a l p a r t s o f menu i t e m s (such as sandwich wrappers o r d r i n k However, u n d e r containers). § 40-23-1(9), a d e f i n i t i o n a l tax-levying s t a t u t e t h a t must be s t r i c t l y c o n s t r u e d a g a i n s t t h e S t a t e ( s e e State v. R e y n o l d s M e t a l s Co., 263 A l a . 657, 661, 83 So. 2d 709, 711 classifying (1955)), a l l that i s required f o r purposes of a b u l k s a l e t o a r e t a i l e r , s u c h as t h e t a x p a y e r ' s p u r c h a s e s o f q u a n t i t i e s o f p e a n u t s , as a n o n t a x a b l e " w h o l e s a l e sale" i s that a subsequent retail 7 "resale" of tangible 2090753 p e r s o n a l p r o p e r t y o c c u r ; t h e r e i s no s t a t u t o r y r e q u i r e m e n t purposes of separate price 1975, classifying be a overtly § 40-23-1(10) ("The sale as a s t a t e d and retail paid. sale See for that Ala. Code q u a n t i t i e s o f goods s o l d o r p r i c e s at which s o l d are i m m a t e r i a l i n d e t e r m i n i n g whether or not sale i s at operator, peanuts their retail."). as liable i n bulk trial the f o r use restaurant to consume as d i n n e r m e a l s , as t h e D e p a r t m e n t s u g g e s t s be cost of presented a i t s customers f o r peanuts they aggregately 593, in t h e v e r y p u r p o s e o f s a l e s and u s e t a x a t i o n consumer's tax, b u r d e n must be b o r n e by c o n s u m e r s . A l a . 590, at charges adopt the Department's p o s i t i o n would a l s o , as of of incremental To a a a part our view, u n d e r c u t 252 taxpayer, case, would d i s r e g a r d the evidence average operate the t a x b a s e d upon i t s p u r c h a s e i n d i c a t i n g t h a t the taxpayer consume. to treat f o r i t s customers l u n c h and done i n t h i s To a 42 So. 2d 465, as to which the See M e r r i w e t h e r 466 (1949). ultimate v. S t a t e , 2 We n e e d n o t be l o n g d e t a i n e d by t h e de m i n i m i s p r o s p e c t t h a t a p e r s o n m i g h t e n t e r a r e s t a u r a n t o p e r a t e d by the taxpayer and consume o n l y p e a n u t s w i t h o u t p u r c h a s i n g an entree. That t h a t p o s s i b i l i t y i s merely h y p o t h e t i c a l i s borne o u t by t h e t e s t i m o n y o f t h e t a x p a y e r ' s manager t h a t t h a t " j u s t doesn't happen," i . e . , t h a t such an e v e n t occurs with "minimal" frequency. 2 8 2090753 Our r e a s o n i n g i s c o n s i s t e n t w i t h t h a t e m p l o y e d by a N o r t h C a r o l i n a a p p e l l a t e c o u r t i n an a n a l o g o u s c a s e , I n r e Cafe, 111 N.C. App. d i s m i s s e d , 336 N.C. the 683, 68, 441 taxpayers purchased foods v i a wholesale purchased beverages 433 S.E.2d S.E.2d 551 peanuts, sales 236 (1993), (1994). pretzels, f o r consumption Rock-Ola In and by review Rock-Ola, other snack customers a t i t s r e s t a u r a n t b a r s ; as i n t h i s who case, the t a x p a y e r i n t h a t case d i d not d i r e c t l y impose a charge f o r such e d i b l e i t e m s , but i t i n c l u d e d t h e i r c o s t s and r e c o v e r e d them i n c u s t o m e r s ' p a y m e n t s f o r o t h e r menu i t e m s sales taxes were collected). The North (as t o w h i c h Carolina taxing a u t h o r i t i e s , which p e t i t i o n e d the a p p e l l a t e c o u r t i n Rock-Ola to reverse a t r i a l c o u r t ' s judgment r e v e r s i n g the assessment o f use t a x e s upon t h e r e s t a u r a n t o p e r a t o r s , c o n t e n d e d i n R o c k O l a , as t h e D e p a r t m e n t c o n t e n d s i n t h i s c a s e , t h a t no of bar foods taxpayers' actually S.E.2d a t had o c c u r r e d because, "customers purchase[d] o r d e r e d f r o m t h e menus." 236. s a l e s and u s e After taxation, noting i t was only the 111 N.C. the asserted, specific App complementary 9 argument: the meals a t 684, aspects the North C a r o l i n a Court of r e j e c t e d the t a x i n g a u t h o r i t i e s ' resales 433 of Appeals 2090753 "We a g r e e w i t h t h e t a x p a y e r s ' argument t h a t t h e items here i n v o l v e d a r e not s u b j e c t t o a use t a x b e c a u s e t h e i t e m s were p u r c h a s e d f o r r e s a l e . Sales t a x e s due on t h e i t e m s a r e f u l l y p a i d b y v i r t u e o f the c o r r e s p o n d i n g i n c r e a s e i n each menu-item p r i c e f o r which customers are charged. " I n o r d e r f o r t h e t a x p a y e r s t o be l i a b l e f o r payment o f a u s e t a x on t h e v a r i o u s i t e m s i t must be shown t h a t s u c h i t e m s were p u r c h a s e d f o r p u r p o s e s o t h e r t h a n r e s a l e , a n d t h a t no s a l e s t a x was p a i d when t h e p u r c h a s e s were made. "... P e t i t i o n e r s h a v e shown t h a t t h e r e s p o n d e n t t a x p a y e r s d i d n o t pay a s a l e s t a x a t t h e time o f p u r c h a s e , b u t t h e r e i s no s h o w i n g t h a t t h e i t e m s were p u r c h a s e d f o r p u r p o s e s o t h e r t h a n r e s a l e . The taxpayers i n c l u d e d the cost of a l l the v a r i o u s items i n t h e i r menu-item p r i c e s and c o l l e c t e d s a l e s t a x e s on t h o s e p r i c e s . This i s c e r t a i n l y equivalent t o r e s e l l i n g the items." 111 N.C. App a t 686, 433 S.E.2d Compare Broadmoor H o t e l , a t 237 (emphasis added). I n c . v. D e p a r t m e n t o f R e v e n u e , 773 P.2d 627 ( C o l o . C t . App. 1989) ( r e a c h i n g o p p o s i t e r e s u l t r e s p e c t t o snacks p r o v i d e d by h o t e l o p e r a t o r t o p a t r o n s hotels' lower bars court's after concluding determination that that i n c l u d e d i n p r i c e s of beverages The trial taxpayer restaurant court's included the cost d i d not of snacks at i t s support had been sold). determination cost record with of i n this peanuts case consumed that the by i t s customers i n t h e p r i c e s of t h e meals s o l d i n i t s 10 2090753 restaurants i s supported by s u b s t a n t i a l evidence, and i t s l e g a l c o n c l u s i o n t h a t t h e p e a n u t s were s o l d a t r e t a i l t o t h o s e customers i s , therefore, a f f i r m the t r i a l not i n e r r o r . For that reason, we c o u r t ' s judgment. AFFIRMED. Thompson, P.J., and Bryan, concur. 11 Thomas, and Moore, J J . ,

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