Opinion
No. 2-396 / 01-1562.
Filed December 30, 2002.
Appeal from the Iowa District Court for Polk County, DOUGLAS F. STASKAL, Judge.
The petitioners appeal from the district court's affirmance of the assessment of sales tax liability by the Department of Revenue. AFFIRMED.
Mark J. Willging, William C. Fuerste, and Norman J. Wangberg of Fuerste, Carew, Coyle, Juergens Sudmeier, P.C., Dubuque, for appellants.
Thomas J. Miller, Attorney General, and Valencia Voyd McCown, Assistant Attorney General, for appellee.
Heard by HUITINK, P.J., and MAHAN and VAITHESWARAN, JJ.
The petitioners appeal from the district court's affirmance of the assessment of sales tax liability by the Iowa Department of Revenue and Finance. They claim food they purchased for consumption by patrons on their riverboat was purchased for resale, and therefore not subject to sales tax. In the alternative, they claim they did not purchase "catered" food or "foods prepared for immediate consumption," which would be subject to sales tax. We affirm.
I. Background Facts Proceedings
Robert and Ruth Kehl are the sole shareholders of Dubuque Casino Bell, Inc. (DCB), which operated a riverboat on the Mississippi River between 1991 and 1993. From April 1, 1991, to March 31, 1992, DCB sold single-price admission tickets to the riverboat that entitled a patron to: (1) admission to the boat; (2) a cruise on the Mississippi River during cruising season; (3) admission to the gambling casinos on the boat if the patron was more than twenty-one years old; (4) a buffet meal; and (5) admission to any entertainment. Tickets were $39.95 for a dinner cruise and $29.95 for a lunch or brunch cruise. DCB did not collect or pay any sales tax on these tickets.
From April 1, 1992, until March 31, 1993, in addition to the tickets outlined above, DCB sold tickets which did not include a buffet meal. During that year, on tickets that included a meal, DCB collected sales tax for the cost of the meal.
DCB purchased all of the food it served from Robert's River Rides, Inc. (RRR). RRR cooked or prepared the food in large quantities, while DCB made it ready for consumption by patrons. RRR charged DCB $17.50 per person for dinner cruises and $13.50 per person for lunch or brunch cruises.
In 1994, the Department assessed a sales tax liability against DCB in the amount of $343,132.70 for food purchased from RRR. DCB paid the tax, plus interest and penalties. DCB filed a timely protest claiming the food was purchased for resale, and thus was not subject to sales tax under Iowa Code sections 422.42(11) and 422.43(1) (1993). It also claimed the purchase of the food was exempt from sales tax, pursuant to section 422.45(12), which exempts the sale of food, except that catered or prepared for immediate consumption.
An administrative law judge (ALJ) determined the sales tax was properly assessed against DCB. The ALJ found there was no separate "sale" of food to the patrons of the riverboat, and therefore, DCB did not purchase the food for resale. The ALJ also found the food was catered and/or prepared for immediate consumption, which made the exemption for the sale of food inapplicable. The ALJ decision became the Department's final decision. On judicial review, the district court upheld the Department's decision. DCB appeals.
II. Scope of Review
When we review a decision of a district court rendered pursuant to section 17A.19, the sole question is whether the district court correctly applied the law. Harlan Sprague Dawley, Inc. v. Iowa State Bd. of Tax Review, 601 N.W.2d 66, 68 (Iowa 1999). In reviewing an administrative agency's interpretation of a statute, we give weight to the agency's determination but are not bound by its interpretation. North Star Steel Co. v. Iowa Dep't of Revenue, 380 N.W.2d 677, 679 (Iowa 1986). The meaning of a statute is always an issue of law for the court to decide. Id.
The district court, as well as this court, is bound by the agency's factual findings if they are supported by substantial evidence in the record. IBP, Inc. v. Harpole, 621 N.W.2d 410, 414 (Iowa 2001). Evidence is substantial when a reasonable person would accept it as adequate to reach a conclusion. Mississippi Valley Milk Producers Ass'n v. Iowa Dep't of Revenue, 387 N.W.2d 611, 614 (Iowa Ct.App. 1986).
III. Sale for Resale
Section 422.43(1) provides that a tax is imposed "upon the gross receipts from all sales of tangible personal property, consisting of goods, wares, or merchandise, . . . sold at retail in the state to consumers or users;. . . ." Holland Bros. Constr. Co. v. Iowa State Bd. of Tax Review, 611 N.W.2d 495, 499 (Iowa 2000). "Retail sale" is defined as "the sale to a consumer or to any person for any purpose other than for processing, for resale of tangible personal property or taxable services, or for resale of tangible personal property in connection with taxable services; . . ." Iowa Code § 422.42(11).
As noted above, DCB claims its purchase of food from RRR does not come within the definition of "retail sale" because it purchased the food for resale. Normally, a sale of personal property for resale is not subject to sales tax; the sales tax is imposed on the resale. Sturtz v. Iowa Dep't of Revenue, 373 N.W.2d 131, 134 (Iowa 1985).
Generally, a taxing statute is construed liberally in favor of the taxpayer and strictly against the taxing body. Scott County Conservation Bd. v. Briggs, 299 N.W.2d 126, 127 (Iowa 1975). It must appear from the language of the statute that the tax assessed against the taxpayer was clearly intended. Dodgen Indus., Inc. v. Iowa State Tax Comm'n, 160 N.W.2d 289, 296 (Iowa 1968). However, when a taxpayer relies on a statutory exemption, the exemption is construed strictly against the taxpayer and liberally in favor of the taxing body. Mississippi Valley Milk Producers, 387 N.W.2d at 615. Doubts are resolved against exemption. Id.
The Department determined DCB was relying on a statutory exemption, which should be strictly construed against DCB. On appeal, DCB contends that its actions simply do not come within the definition of a "retail sale," and the statute should be strictly construed against the Department. Looking at Iowa Auto Dealers Ass'n v. Iowa Dep't of Revenue, 301 N.W.2d 760, 763 (Iowa 1981), we determine all sales enumerated in section 422.43 are subject to the tax, other than those excepted, such as sales of goods for resale. "This is the language of exemption." Iowa Auto Dealers, 301 N.W.2d at 763. We conclude the Department was correct in strictly construing the statute against DCB.
We turn then to the question of whether DCB's purchase of food from RRR was for resale to patrons of the riverboat. On this issue, the Department stated:
While the patron was paying for the meal, it was only a part of the total entertainment package that they were purchasing. The meal was advertised and was an integral part of the total package. It can be argued that it was more than merely incidental to the total purchase, but it was not separately bargained for by the patron. Because it was part of the total consideration of the whole entertainment, [DCB] was the consumer of the foodstuffs. It was one of the attractions used to entice the patrons to the casino. There was no separate "sale" of the food to the patrons.
The Department relied on cases which held the service of food to passengers on an airline was not a "resale" of the food, because food was only part of the total "package," and was not separately bargained for. See American Airlines, Inc. v. Illinois Dep't of Revenue, 319 N.E.2d 28, 32 (Ill. 1974); USAir, Inc. v. Indiana Dep't of State Revenue, 542 N.E.2d 1033, 1035-36 (Ind. Tax 1989); Bargo Foods North v. Wisconsin Dep't of Revenue, 415 N.W.2d 581, 584 (Wis.Ct.App. 1987).
We also consider Greystone Catering Co., Inc. v. South Carolina Dep't of Revenue, 486 S.E.2d 7 (S.C.Ct.App. 1997), instructive in this case. In Greystone Catering, a hotel offered a package price on a room, complete with breakfast buffet and drinks in the evening. The guests were not given a choice of accepting or rejecting the breakfast and drinks, and were not billed separately for those items. The court concluded that if the guests were billed separately for the food, they would be considered the final consumers and would be responsible for the sales tax on those items. Greystone Catering, 486 S.E.2d at 8. Where the food was part of a "package," however, the hotel was the final consumer and was responsible for the tax on the food consumed by the guests. Id.
In the present case, the food was part of the total "package" offered to patrons of the riverboat. There was no separate bill for the food. Patrons were charged the same whether they ate or not. We determine there is sufficient evidence in the record to support the Department's conclusion that DCB did not purchase the food in question from RRR for the purpose of resale. Because the food was part of a "package," DCB is considered the final consumer.
IV. Exemptions
DCB also claimed its purchase of food from RRR should be exempt under section 442.45(12), which provides an exemption for "[g]ross receipts from the sale of all foods for human consumption. . . ." The exemption does not apply to "foods sold by caterers and hot or cold foods prepared for immediate consumption off the premises of the retailer." Iowa Code § 442.45(12).
The statute also provides:
"Foods prepared for immediate consumption" include any food product upon which an act of preparation, including but not limited to, cooking, mixing, sandwich making, blending, heating or pouring, has been performed by the retailer so the food product may be immediately consumed by the purchaser.Id. In interpreting this provision, the Department rules state:
The division of food and drink into smaller portions is not by itself preparation by the retailer for immediate consumption off of the premises of the retailer. Food prepared for immediate consumption is food prepared to a point generally accepted as ready to be eaten without further preparation and that is sold in a manner that suggests readiness for immediate consumption.
Iowa Admin. Code r. 701-20.5(2)(c).
On this issue we find DCB is clearly attempting to come within a statutory exemption. Therefore, we conclude the Department was correct in strictly construing the statute against DCB. Iowa Auto Dealers, 301 N.W.2d at 763.
The parties stipulated that all hot food, such as ham, chicken kiev, scrambled eggs, potatoes, and vegetables, was received by DCB fully cooked. Salad was also received pre-tossed, and DCB staff added only salad dressing. For frozen fruit salad and desserts, DCB staff merely separated the items into individual servings. It is apparent the cooking, mixing, blending, and heating of the food was performed by RRR. DCB's division of the food into smaller portions is not considered "preparation" under the agency's rules. We determine there is clearly sufficient evidence in the record to support the Department's conclusion the food was prepared by RRR for immediate consumption.
Because there is sufficient evidence to find the food was prepared for immediate consumption, we do not need to address the separate question of whether the food was sold by a caterer. We conclude the Department properly found the purchase of the food by DCB did not come within the exemption found in section 442.45(12).
We affirm the decision of the Department and the district court.