Missouri: Operator of a Cafeteria in Federal Building Liable for Sales Tax on Meals

The Missouri Supreme Court recently addressed whether the operator of a cafeteria in a federal building was required to remit sales tax on sales of food items. The taxpayer at issue operated a cafeteria at the Federal Reserve Bank of Kansas City. The cafeteria was used primarily by employees of the Federal Reserve Bank because certain security measures restricted access to the location of the cafeteria. However, third parties could use the cafeteria if they were cleared through security. All of the food was purchased by the taxpayer, but the Bank subsidized the cost of the food and it was sold to employees at below market rates. After the Department of Revenue assessed sales tax on the meals served in the cafeteria, the taxpayer appealed to the Administrative Hearing Commission. The Commission upheld the assessments, and the taxpayer appealed to the state’s highest court.

Before the Missouri Supreme Court, the issue was whether the cafeteria was liable for sales tax on the food purchased by employees of the Bank, an entity exempt from sales tax pursuant to federal law, when the Bank subsidized the cost of food, influenced pricing, and set the cafeteria’s hours. The taxpayer first argued that the meals were not subject to tax because the premises were not open to the public due to the restricted access. The court, however, agreed with the Commission that the cafeteria was a public place even though access was restricted. Notably, any member of the public who could gain access to the facility could eat in the cafeteria. The court next rejected the taxpayer’s argument that the meals were not subject to tax because the Federal Reserve was a tax-exempt entity and the Bank was actually the purchaser of the meals. In evaluating the identity of the “purchaser,” the court looked to who had dominion and control over the purchased food. Although the Bank had dominion and control over the cafeteria’s hours and pricing and was responsible for storing the food, in the court’s view, that did not make the bank the purchaser of the meals. Dominion and control after purchase was the key factor, not dominion and control before purchase. Cafeteria customers exercised dominion over the food after purchase. Finally, the court rejected the taxpayer’s argument that because the decision was “unexpected,” the court’s holding should be applied prospectively only. Please contact John Griesedieck at 312-665-3024 with questions on Myron Green Corp. v. Director of Revenue.