United States

Missouri: Frozen Meals sold to Commercial Airlines Not Eligible for Reduced Sales Tax Rate for “Food”

Oct 10, 2016
From KPMG TaxWatch

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Recently, the Missouri Supreme Court held that sales of frozen meals to commercial airlines did not qualify for the reduced sales tax rate imposed on certain sales of food. Under Missouri law, sales and use tax is generally imposed at a rate of four percent on sales of tangible personal property. A lower one-percent rate applies to sales of “food.” The term “food” is defined to include only the types of food for which food stamps may be redeemed pursuant to the federal Supplemental Nutrition Assistance Program (formerly Food Stamp program).  Under the program, “food,” is defined in relevant part, as “any food or food product for home consumption.” The taxpayer at issue sold frozen meals to commercial airlines. The meals were heated and then eaten by the airlines’ passengers, pilots, and crew while on board the aircraft. The Director of Revenue audited the taxpayer and determined that these sales did not qualify for the reduced rate. The taxpayer paid the resulting additional assessment under protest and appealed the Director’s determination to the Administrative Hearing Commission. After the Commission upheld the Director’s determination, the taxpayer appealed to the Missouri Supreme Court.

On appeal, the taxpayer again argued that the lower rate should apply because its frozen meals were the same as frozen meals that could be bought “for home consumption” under the federal nutrition assistance program. The court noted that the taxpayer’s position required it to look at the transaction “in the abstract” and to ignore the context of the sales transaction. Although the meals could be taken home by passengers, the reality was that the meals were expected and intended to be eaten exclusively on the customers’ aircraft. As a result, the meals were not considered as being “for home consumption” and the court affirmed the Commission’s decision.

The taxpayer also argued that the disparate treatment of frozen airline meals and frozen meals from a grocery store violated the Uniformity Clause of the Missouri Constitution. The Uniformity Clause requires that taxes be uniform on the same “class” of taxpayers, but does not prohibit the state from treating one class of taxpayers differently if there is a reasonable basis for such treatment. Noting that applying a lower rate of tax on food for home consumption did not distinguish between “classes” of taxpayers, the court nevertheless observed that it was reasonable to tax food that is sold “for home consumption” differently than food that is not. Finally, the taxpayer argued that, if the court ruled against it, that this decision was unexpected and the court’s holding should be applied prospectively only. The court again rejected this argument noting that a decision is “unexpected” when a reasonable person would not have expected the decision or order based on prior law, previous policy or regulation of the department of revenue. A decision is not unexpected, however, merely because a statute was construed less favorably to a taxpayer than the taxpayer may have liked. The Court concluded that a review of the authorities addressing the taxability of food would not have reasonably led the taxpayer to conclude its sales were subject to tax at the lower rate. Please contact John Griesedieck at 312-665-3024 with questions on Gate Gourmet, Inc. v. Director of Revenue.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.