Missouri Supreme Court Holds Sales Tax Exemption For Electricity Used In 'Processing' Does Not Include Retail Food Preparation

The Missouri Supreme Court has held that a convenience store was not entitled to an exemption from sales and use tax for the electricity it purchased for its food preparation operations.1 The Court held that the term "processing" that is used in the sales tax exemption for electricity used or consumed in manufacturing, processing or producing any product was not intended to include retail food preparation.

Background

The business filing the complaint was a utility company (Aquila) that sold electricity to residential and commercial customers, including Casey's General Stores (Casey's). Casey's operated convenience stores that were engaged in the retail sale of gas, grocery items, various non)food items and prepared foods. Many of the food products only required minimal preparation such as reheating before they were served, but additional preparation was required for pizza and donuts.2 Casey's filed a refund claim with the Missouri Director of Revenue for one month's tax paid for a portion of electricity that Aquila sold to two Casey's stores. The Director denied Casey's refund claim.

At Casey's request, Aquila filed a complaint challenging the Director's final decision denying Casey's refund claim for state sales and use tax paid. The Missouri Administrative Hearing Commission (AHC) reversed the Director's final decision and decided that a portion of Casey's purchased electricity was exempt from sales and use tax as electricity used in processing a product.3 The AHC held that the statute was intended to exempt a broad range of activities and that Casey's food preparation operations were "processing" within the meaning of the statutory exemption. The Director appealed the Commission's decision.

Food Preparation Did Not Qualify as "Processing"

Missouri law provides an exemption from sales and use tax for "electrical energy and gas . . . used or consumed in the manufacturing, processing, compounding, mining, or producing of any product."4 In determining whether Casey's was entitled to the exemption for electricity purchased for its food preparation, the Missouri Supreme Court needed to decide if Casey's engaged in "processing" for purposes of the exemption. Although Missouri provides a statutory definition of "processing,"5 the Court found that the definition was ambiguous. The Missouri statute defines "processing" as "any mode of treatment, act, or series of acts performed upon materials to transform or reduce them to a different state or...