Food in private cafeterias not taxable, court rules

JEFFERSON CITY, Mo. -- Food and drinks bought in private company cafeterias are not taxable if the cafeterias are not accessible to the public, the Missouri Supreme Court ruled Tuesday.

The decision could require the state to pay millions of dollars in refunds to companies that collected the sales taxes, said Patricia Churchill, general counsel for the Department of Revenue.

"It will involve several million dollars in refunds," Churchill said, but added that she did not know exactly how many companies would be affected or how much money would be at stake.

Businesses have a three-year window after they paid taxes during which they can file an appeal with the department. After that time, companies lose their right to appeal.

The Revenue Department had required Columbia-based Shelter Insurance Cos. to pay sales taxes on food and drinks sold in the company cafeteria. But the Supreme Court ruling overturns that decision and requires the state to reimburse Shelter the $110,000 it had paid in taxes plus interest.

Churchill said the ruling applies only to companies that own and operate their own cafeterias for their employees. Companies that hire contractors for their cafeteria service would still have to pay taxes, she said.

State law requires taxes to be collected at any place where "meals or drinks are regularly served to the public." But the court ruled that Shelter's cafeteria did not regularly serve the public. The building is only open to people with company identification cards. Visitors are only allowed into the building when a company employee signs them in and escorts them.

The court held the restrictions on entering the building mean the cafeteria does not regularly serve the public.

The test for whether the company should have to pay taxes is whether the cafeteria has a special relationship with its patrons and whether the cafeteria tries to get public business, Judge William Ray Price Jr. wrote for the majority.

"Shelter's employees are not merely 'typical' restaurant patrons, but are bound to Shelter by a special relationship," Price wrote.

In 2001, the court ruled that J.B. Vending Co. had to pay taxes on food and drink sold in its cafeteria because the company did not subsidize the cafeteria operations.

Also, the cafeteria's patrons were not employees of J.B. Vending, but rather of J.B.'s client companies. Therefore the cafeteria's patrons were almost like typical restaurant patrons, the court held.

On the other hand, "Shelter deemed its cafeteria service so vital to the convenience and productivity of its employees that it subsidized the cafeteria's operating costs," Price wrote.

The judges used a similar 1943 Massachusetts case involving cafeterias at Wellesley College to make their decision. In that case, a Massachusetts court held that the school did not need to collect taxes, as the school cafeterias also had a special relationship with their patrons.

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The case is Shelter Mutual Insurance Co. v. Director of Revenue, SC84617.

On the Net

Missouri Supreme Court: www.osca.state.mo.us/sup/index.nsf