Shelter Mutual Insurance Co. v. Director of Revenue

MICHAEL A. WOLFF, Judge,

concurring in part and dissenting in part.

I concur in part and dissent in part, as follows:

1. I agree with Shelter’s contention that its cafeteria is not a “place in which ... meals or drinks are regularly served to the public.” Section 144.020.1(6). The principal opinion’s conclusion is supported by the fact that Shelter prices its food so low that it operates the cafeteria at a loss as a service to its employees. Thus, Shelter is not trying to attract business for its cafeteria from the public at large because obviously it has no intent to underwrite the cost of meals for the public.
2. I dissent from the principal opinion’s conclusion that the state has waived its right to an offset of the $50,456 in taxes that Shelter owes on its purchases of food for the cafeteria.
3. When a seller receives a refund of sales tax collected from customers— with no obligation to pay the amounts back to its customers — the seller “taxpayer” is unjustly enriched. Ordinarily I believe the Court should impose a constructive trust, in favor of the customers who were charged for the sales tax, on the refund amounts to prevent unjust enrichment. However, such a remedy is not warranted in this case because Shelter, in subsidizing the cafeteria’s operations for the benefit ■ of its employees, is not being unjustly enriched because of the benefits being given to the employees.

1. Serving the Public — Section 144.020.1(6)

Relying in part on so-called “country club” or “member only” cases, the principal opinion concludes that meals sold at *925Shelter’s cafeteria were not taxable under section 144.010.1(6) because a “special relationship” between Shelter and its employees exists such that when Shelter sells food to its own employees, it is not regularly serving the public. Sales to non-employees — authorized and escorted guests — were found to be de minimus so as not to invoke taxation.

I believe that the so-called “country club” exception is contrary to the taxing statute and offensive to the concept of fair taxation. See Greenbriar Hills Country Club v. Director of Revenue, 47 S.W.3d 346 (Mo. banc 2001). On this point, accordingly, I concur in the result but would use an, alternate analysis that focuses on Shelter’s lack of intent to sell its meals to the public.

Section 144.020.1(6) imposes a tax on “places in which ... meals are regularly served to the public.” When meals are served to a non-employee at Shelter’s cafeteria, Shelter collects money directly from the patron. This arrangement is different from that at country clubs where the club collects money for meals served to members’ guests directly from its members.

In light of this special relationship between a country club and its members, a “country club” exception was fashioned— inappropriately, in my opinion — to exclude taxation of meals served by a country club to its member and members’ guests. Usually the club member — and not the guest— pays the bill. Otherwise the guest, who is not a member of the club, would logically be a member of the public.

The same is true at Shelter. When a patron at the cafeteria is an employee’s guest or a person who happens to be in the building delivering supplies, that person is not an employee and, thus, is not a member of the “club”. If Shelter wants to use the country club exception, it should sell only to its employees.

If the employee has a guest, the employee should pay for his guest’s food. Otherwise, anyone who is in the building — say, to deliver supplies — can buy a meal at the cafeteria. If that were so, then the cafeteria would be a place where meals are regularly served to the public. This would seem no different than J.B. Vending where the court noted that those eating in the cafeterias had no relationship with the vendor, which makes them more like typical restaurant patrons. J.B. Vending Co. v. Director of Revenue, 54 S.W.3d 183, 189 (Mo. banc 2001).

So, how is Shelter’s cafeteria different from J.B. Vending? It is different, perhaps, in this unusual case because Shelter actually underwrites a portion of the cost of providing food to its employees. The principal opinion properly notes that Shelter has not “invited the trade of the public” where it offers meals at prices too low to cover operation costs. That is disposi-tive of its intention not to serve the public. Shelter obviously has no interest in attracting customers from the outside, because it loses money on the meals. For this reason, I concur in the result on this point.

2. The State Should Be Allowed to Keep the Amount Shelter Owes

I dissent, however, from the majority’s conclusion that Shelter’s refund should not be offset by the amount of unpaid tax due. Because Shelter purchased its food, drink and restaurant supplies for resale, it gave its suppliers an exemption from sales tax on the grounds that the food would be sold at retail and the tax would be collected from Shelter’s customers. Shelter did indeed collect from its customers sales taxes in the amount of $110,053.97, which it remitted to the director.

Shelter then sought a refund of that $110,053.97 amount and brought this pro*926ceeding. In seeking a refund, Shelter stipulated in this proceeding that “[i]f tax was due on Shelter’s purchases of meal and drink components, Shelter would have incurred $50,456 in Missouri and local sales tax” for the relevant tax periods. This stipulation is an admission by Shelter that any refund received should be offset by taxes due on its purchases of meal and drink components. This admission indicates that Shelter knew of its tax liability.

Shelter argues that the director failed to notify it of the tax liability within the three-year statute of limitations in Section 144.220.3 by not claiming an offset in this proceeding.

Shelter should not prevail on this point. First, by stipulating as to tax owed, Shelter waived the statute of limitations defense. A statute of limitations may be waived if there is a “clear, unequivocal and decisive act of the party showing such purpose.” Schwab v. Brotherhood of Am. Yeomen, 305 Mo. 148, 264 S.W. 690, 692 (1924); Dice v. Darling, 974 S.W.2d 641, 645 (Mo.App.1998).

Second, the director should not be required to plead an offset that is contrary to her legal theory. Shelter’s pleading is for a refund; the director’s answer is that Shelter is not entitled to a refund. It makes no sense to require the director to plead — in the alternative and contrary to her legal theory — that if Shelter prevails, the state is entitled to an offset.1 By requiring an alternative and inconsistent pleading, this Court allows Shelter to give its suppliers a tax exemption on the basis that the tax will be collected at retail and then seek a full refund of the taxes paid at retail by Shelter’s employee-customers.

As a result, Shelter receives more than $110,000 in the form of a refund even though none of the tax money paid came out of Shelter’s pocket. The state was entitled to $50,046 in tax; Shelter stipulated to that fact. The state has $110,053.97 and should be entitled to keep the $50,046 that Shelter agrees that it owes.

3. Refunds That Create Unjust Enrich-ments Should Be Avoided

Whether Shelter receives a refund of $110,053.97 or the $60,000 difference between what the director received and what Shelter owed, Shelter will receive a windfall. Its customers actually were charged for the amount of the tax.

Only in this rare situation is such a windfall acceptable. In a sense, and with the Court’s help, Shelter will return the money to the customers because Shelter sells its food below cost and thereby operates the cafeteria at a loss.

In most situations, however, the vendor will pocket the refund, and its customers, who are the actual parties in interest because they were charged for the sales tax, will receive nothing.

Ever since the early common law, the principle of unjust enrichment has been constant: “Whenever one person has received money to which another person, in justice and good conscience, is entitled, the law creates or implies a promise by the former to pay it to the latter....” Benjamin J. Shipman, Handbook of Common-Law Pleading 162 (3d ed.1923).

The factual situation in sales tax cases, where the seller receives a refund of amounts actually charged to its customers, would certainly be unjust enrichment. *927The seller receives a benefit at the expense of the customer. When this occurs, it seems that these customers may well bring a class action against the seller seeking restitution and requiring the vendor to hold any refund received in a constructive trust for the benefit of the customers. This remedy was granted by an Illinois court in Cohon v. Oscar L. Paris Co., 17 Ill.App.2d 21, 149 N.E.2d 472 (1958).

In Cohort,, customers brought a class action against a seller of wall-to-wall carpeting after the seller received a tax refund of more than $130,000 because the seller was found to not be subject to the retailers’ occupation tax. Id. at 473. The court found that the tax money “in equity and good conscience” did not belong to the seller but to “customers who had paid it” and ordered the seller to hold the refund in the form of a constructive trust for the benefit of its customers. Id. at 475.

This Court’s decision in Cole v. Morris, 409 S.W.2d 668 (Mo.1966), is instructive. There, an injured employee collected benefits from the second injury fund as a result of an auto accident while on the job. He subsequently recovered damages from a third-party tortfeasor. While the statutes did not recognize a subrogation right of the state treasurer, custodian of the second injury fund, to recover the money paid to the injured worker, this Court held that a constructive trust would be imposed in favor of the treasurer so that the employee would not be unjustly enriched by collecting money from two sources for the same injury. Cole thus holds that a constructive trust is warranted even though the person who was unjustly enriched did nothing wrong in a legal sense. See Restatement (FiRst) of Restitution sec. 160 (1937). Cf. Straube v. Bowling Green Gas Co., 360 Mo. 132, 227 S.W.2d 666, 670-71 (1950).

A second option would be to prevent any future overpayment of taxes but deny the refund entirely unless the vendor first agrees to pass the refund along to its customers. With this option, the money would either remain with the state or be given to the tax-paying customers thereby eliminating any unjust enrichment. This option may be appropriate even though the statute authorizes only the vendor — the one obligated to remit the tax — to seek the refund. Section 144.190.2

Some state courts have denied refund requests from vendors because they did not pay the tax and, thus, were not the real parties in interest.3 In Cook v. Sears-Roebuck & Co., the Supreme Court of Arkansas denied Sears’ request for a refund of taxes paid by customers because allowing such a refund would “disregard completely the entire doctrine against unjust enrichment.” 212 Ark. 308, 206 S.W.2d 20, 22 (1947). The court noted that Sears *928had no plans to return the money to its customers and was not entitled to a refund unless and until it could remove itself from the rule of unjust enrichment. On the basis of avoiding unjust enrichment, a Kentucky court refused to refund a sales tax of seven cents per quart of ice cream that the seller had collected from its customers. The seller sought a refund on the ground that the sales tax had been declared unconstitutional. Shannon v. Hughes & Co., 270 Ky. 530, 109 S.W.2d 1174 (App.1937).

Similarly, even though the Missouri statute authorizes only the seller to seek a refund, this Court could deny refund — to avoid countenancing an unjust enrichment — unless the seller agrees to pass the money on to its customers. The ability to resolve the dispute in one case rather than two — one to grant the refund, and the second a class action to provide return of the tax money to the customers — makes this option more judicially economical.

That being said, I concur in allowing a windfall in this unusual situation. Shelter will receive a refund, but it operates the cafeteria at a loss for its employees’ benefit. Shelter will keep a refund of money that did not actually come out of Shelter’s pocket. There is an enrichment here, but it is not unjust because it appears that the refund will ultimately benefit the employee-customers, whose meals are subsidized.

Conclusion

I concur in the conclusion that Shelter’s cafeteria is not a place in which meals are regularly served to the public. I dissent from requiring the director to refund to shelter the $50,046 that Shelter clearly owes on its purchases of food supplies for the cafeteria.

Sales tax refunds should benefit those who paid the money for the tax. In cases where a refund would result in a windfall to the seller, the director, the administrative hearing commission and this Court should not be in the business of facilitating unjust enrichment.

Refunds should not be given unless the seller agrees to refund those amounts to the customers who paid them. Where a seller prevails in an action for refund, the seller’s costs in bringing the action should be passed along to its customers, in much the' same fashion as members of a class pay attorney’s fees from a common fund. Jesser v. Mayfair Hotel, Inc., 360 S.W.2d 652, 661 (Mo. banc 1962). The seller, though not entitled to keep the refund, benefits from the case by the declaration that its sales in the future are not subject to sales tax. In some cases, where there are records of purchases, usually large purchases, the customers can be readily identified. In other cases, the seller should have a plan to benefit its future customers — the next-best class.

In any event, if the person obligated to remit the tax wants the money refunded— in addition to a declaration of the nonliability for sales tax — the person should be prepared to return the money to those who provided it rather than to expect to be unjustly enriched.

. Rules 55.06 and 55.10 allow a party to plead in the alternative but do not require a party to do so.

. Missouri law provides that only the "person legally obligated to remit the tax” to the state meaning the seller and not the purchaser can seek a refund. Section 144.190; Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331, 336 (Mo. banc 1996). While customers would lack standing on their own to request a refund, they should not be precluded from bringing an action against the seller for restitution where that seller has received a refund from the state.

. Other states have legislation governing rights to such refunds. To prevent the seller from obtaining a windfall in the event he is unable or unwilling to locate the customer who actually paid the tax, New Jersey enacted a statute requiring persons seeking a refund to first prove they are the party who actually paid the tax. NJ.S.A. 54:32B-20 (2003); Commercial Refrigeration & Fixture Co., Inc. v. Director, 184 N.J.Super. 387, 2 N.J.Tax 415, 446 A.2d 210 (1981). Taking a slightly different approach, Minnesota’s statute requires the vendor to either agree to refund the purchaser via crediting amounts due the vendor or returning the amount to the purchaser. M.S.A. 289A.50, subd. 2 (2002).