Westwood Country Club v. Director of Revenue

STEPHEN N. LIMBAUGH, Jr., Judge,

concurring in part and dissenting in part.

I concur in that part of the majority opinion pertaining to the taxation of golf cart fees, but I dissent from the ruling pertaining to the taxation of purchases of food.

In Greenbriar Hills Country Club v. Director of Revenue, 935 S.W.2d 36 (Mo. banc 1996), this Court determined that no sales tax was due on food and drink purchases by the club’s members and guests. As this Court explained, the statute imposing tax on sales for meals or drinks - section 144.020.1(6), RSMo 1994, - refers only to meals or drinks “regularly served to the public,”1 and by negative inference, meals or drinks that are not regularly served to the public, such as those served at the Greenbriar Hills Country Club, are not subject to tax. Greenbriar Hills Country Club, 935 S.W.2d at 38.

Westwood now contends, and the Administrative Hearing Commission agrees, that its initial purchases of food and drink from its suppliers also escape taxation by virtue of the “sale for resale” exclusion or the “component part or ingredient” exemption. The sale for resale exclusion is derived from the text of the statutory definition of “sale at retad” in section 144.010(9), which states:

‘Sale at retail’ means any transfer made by any person engaged in business as defined herein of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and *890not for resale in any form as tangible personal property....

(Emphasis added.) A “sale at retail,” which is by this definition a sale “not for resale,” is subject to tax under section 144.020.1 (see footnote one), and by implication, a sale for resale is excluded from tax. See Brambles Indus., Inc. v. Director of Revenue, 981 S.W.2d 568, 570 (Mo. banc 1998).

The “component part or ingredient” exemption is set out in section 144.030.2(2), which states:

There are also specifically exempted from the provisions of the local sales tax law ...
(2) Materials, manufactured goods, machinery and parts which when used in manufacturing, processing, compounding, mining, producing or fabricating become a component part or ingredient of the new personal property resulting from such manufacturing, processing, compounding, mining, producing or fabricating and which new personal property is intended to be sold ultimately for final use or consumption....

Westwood’s theory under the sale for resale exclusion is that its purchases of certain items of food and drink, such as bags of potato chips that are in their final form for consumption, are purchased “for resale” to its members and guests. Similarly, Westwood’s theory under the component part or ingredient exemption is that the balance of its purchases of food and drink become component ingredients that are processed into meals sold ultimately for final consumption to its members and guests.

The majority maintains that the sale for resale exclusion and the component part or ingredient exemption do not apply because “[t]he purpose of Missouri’s sales tax system is to tax property once and not at various stages in the stream of commerce.” As the majority explains, because the final transactions of food and drink sales from Westwood to its members are not subject to tax under Greenbriar Hills, then the initial transactions between the suppliers and Westwood must be taxed instead. On the other hand, both the majority and the Director seem to agree that the sale for resale exclusion and the component part or ingredient exemption would indeed apply to the initial food and drink sales between Westwood and its suppliers if the final food and drink sales between Westwood and its members were taxed.

Although it is true that the sales tax system is designed generally to subject transactions to sales tax at some point in the stream of commerce, there is no statutory requirement that resales actually be taxable in order for the sale for resale exclusion to apply. Nor is there a statutory requirement that new products made from exempt component ingredients ultimately be sold in a taxable transaction in order for the component part or ingredient exemption to apply. Indeed, the legislature has often seen fit to exempt certain kinds of transactions, or certain kinds of products, from sales tax throughout the entire stream of commerce. For example, in McDonnell Douglas Corp. v. Director of Revenue, 945 S.W.2d 437 (Mo. banc 1997), the sale for resale exclusion applied on McDonnell Douglas’ purchases of certain materials even though the resale of those materials was to an exempt entity - the federal government - so that no tax was imposed on either of the transactions. In fact, section 144.030.2 sets out 36 categories of exemptions for transactions and products that similarly will avoid taxation throughout the entire stream of commerce. In each instance, sales tax is avoided by application of the sale for resale exclusion in tandem with a resale that is exempt from tax. Although this case involves a resale that is excluded from tax rather than exempted from tax, there is no basis to distinguish between the two.

Ultimately, the imposition of sales tax depends on the words of the statutes, not on this Court’s perception of the general purpose of the sales tax system. As noted, *891the resale exclusion is based on the words of section 144.010(9) so that a sale at retail - one that is “not for resale” - is taxable, and consequently, a sale for resale is not. Because many of the food and drink purchases by Westwood are undeniably for resale to its members, they are not sales at retail subject to tax. The exclusion is unqualified and applies whether or not the resale to the club members is subject to tax. However, the majority rewrites the statute so that the operative words of the exclusion are changed from “sale for resale” to “sale for resale except where the resale qualifies for an exclusion from tax.” Only in this way can the majority avoid the sale for resale exclusion.

The majority rewrites the component part or ingredient exemption the same way. The statute refers to “Materials ... [that] become a component part or ingredient of the new personal property ... which ... is intended to be sold ultimately for final use or consumption.... ” Sec. 144.030.2(2). Those food purchases by Westwood that become the component parts or ingredients for meals sold ultimately to the members for their consumption are exempt from tax. Again, the statute is unqualified and applies whether or not the sale for final use or consumption is taxable. Nonetheless, the majority has apparently determined that the words “sold ultimately for final use or consumption” mean “sold ultimately for final use or consumption except where the ultimate sale qualifies for an exclusion from tax.”

I am at a loss to understand the majority’s attempt to distinguish exclusions, such as that noted in Greenbriar Hills, from exemptions, such as those in McDonnell Douglas and section 144.030, as if the sale for resale exclusion applies to non-taxable resales only when those resales qualify for exemptions. By the words of the statute, however, the sale for resale exclusion does not depend on the characterization of the resale as an exclusion or an exemption, or even as a taxable or non-taxable transaction. As noted, the sale for resale exclusion is unqualified and applies across the board, and therefore, the majority’s attempt to distinguish between the exemptions and exclusions is irrelevant.

I would affirm the decision of the Administrative Hearing Commission on all issues.

. The statute states:

1. 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 as follows: ...
(6) A tax equivalent to four percent on the amount of sales or charges for all rooms, meals and drinks furnished at any hotel, motel, tavern, inn, restaurant, eating house, drugstore, dining car, tourist cabin, tourist camp or other place in which rooms, meals or drinks are regularly served to the public;