What's the difference between preparing and manufacturing something? For Missouri restaurants, the difference amounts to tens of thousands of dollars.
The Missouri Supreme Court ruled Tuesday that restaurants cannot claim a tax exemption for the purchase of tables, chairs, plates and kitchen equipment.
The decision hinged on a determination that restaurants prepare - not manufacture - food for their customers. Consequently, the court said, they cannot get the same tax breaks available to manufacturing plants or to processing companies that turn live hogs and into ham ready for human consumption.
"In lay terminology, one does not speak of a restaurant as manufacturing or producing food or drink; instead, restaurants prepare, cook and serve food and drink to their customers," the court said in a 6-1 decision written by Judge Laura Denvir Stith.
Missouri has about 10,500 restaurants that employ more than 200,000 people, according to Department of Economic Development statistics.
Although it could affect all restaurants, Tuesday's ruling dealt specifically with 23 restaurants owned by Dallas-based Brinker Missouri Inc. The company operates businesses under the chain names of Chili's Grill & Bar, Romano's Macaroni Grill, On the Border, and Maggiano's Little Italy.
The company originally sought a tax refund of about $54,000 for restaurant equipment bought between Oct. 1, 2003, and Dec. 31, 2004. The state denied nearly $49,000 of that claim, and the restaurant company appealed about $44,000 of that denial.
An attorney for Brinker Missouri did not immediately return a telephone message Tuesday.
Department of Revenue spokesman Ted Farnen said the agency had been confident its interpretation of tax law was correct. He said there are 28 other pending tax refund claims also involving restaurant equipment.
Attorneys for Brinker Missouri had argued their purchase of tables, chairs, dishes, cups and eating utensils should be tax-exempt because customers later buy the right to use them when they purchase their food.
"This argument proves too much," Stith wrote in the court's decision. "The plates, tables and chairs are not in any real sense transferred to customers any more than a piece of the restaurant floor is transferred to a customer when he or she walks on it, or a bottle of ketchup is transferred when a customer picks it up to use or inspect it, or a menu is transferred to a customer who reads it."
Chief Justice William Ray Price Jr. was the lone dissenter. He said the court in previous cases had applied a broad interpretation of manufacturing plants to allow tax exemptions on equipment bought by telephone companies and newspaper publishers. He also said there was no distinction between facilities that prepare food for wholesale consumption, which receive tax exemptions, and restaurants that similarly use raw ingredients to make a more valuable food product.
"By applying an unduly narrow construction to this exemption, the majority frustrates the legislative intent of creating jobs and nurturing small business in Missouri," Price wrote.