AAA Laundry & Linen Supply Co. v. Director of Revenue
2014 Mo. LEXIS 14
| Mo. | 2014Background
- AAA Laundry operates a commercial uniform rental service: it owns uniforms, picks up soiled items, launders them, and charges customers a rental fee.
- AAA purchases laundering soap and wastewater-treatment chemicals from out-of-state vendors and does not pay sales or use tax on those purchases.
- The Department audited AAA and assessed about $40,000 in use taxes (plus interest/additions) for the out-of-state purchases.
- The Administrative Hearing Commission (AHC) exempted (1) soap under Mo. Rev. Stat. § 144.054.2 (chemicals used in “processing”) and (2) water-treatment chemicals under § 144.030.2(15) (machinery/equipment for water pollution abatement).
- The State sought review; the Missouri Supreme Court reversed the AHC on both exemptions and remanded to calculate tax, interest, and additions.
Issues
| Issue | Plaintiff's Argument (AAA Laundry) | Defendant's Argument (State/Director) | Held |
|---|---|---|---|
| Whether laundering chemicals (soap) are exempt as chemicals "used or consumed in processing" under § 144.054.2 | Laundering is "processing" (sanitization, transforms essentially valueless garments into usable goods); thus soap is exempt as consumed in processing | Unitog and related precedent treat "processing" and "manufacturing" as equivalent; commercial laundering does not produce a new and different product and is repair/restoration, so exemption doesn't apply | Denied — Unitog controls; laundering is not "processing/manufacturing," so soap purchases are taxable |
| Whether wastewater-treatment chemicals are exempt as "machinery or equipment" used solely for water pollution abatement under § 144.030.2(15) | Chemicals are integral components of treatment machinery/equipment and therefore exempt as equipment or constituent parts thereof | Consumable chemicals lack permanence and are not "fixed assets"; Walsworth treats consumables as non‑equipment and only materials/supplies exemption applies | Denied — Walsworth controls; consumable treatment chemicals are not "machinery/equipment," so purchases are taxable |
| Whether Jackson Excavating or other precedents requiring substantial transformation compel a different result | Relies on Jackson Excavating (water purification) to show an activity can qualify even without creating a wholly new article | Jackson was distinguished in Unitog; laundering, like prior cases, is restoration not production of a new article | Denied — Jackson does not undermine Unitog here |
| Whether prior decisions are distinguishable enough to allow a new statutory reading (i.e., rely on § 144.054.2 rather than § 144.030.2) | § 144.054.2 uses the word "processing," which AAA says is broader than "manufacturing" and supports exemption | Court treats "processing" and "manufacturing" as practically equivalent in this context (citing Aquila, Hudson Foods, Mid‑America Dairymen) and declines to depart from Unitog | Denied — statutory and precedential context forecloses expanding exemption |
Key Cases Cited
- Unitog Rental Servs., Inc. v. Director of Revenue, 779 S.W.2d 568 (Mo. banc 1989) (commercial laundering is not "manufacturing" because it does not produce a new and different product)
- Walsworth Publ’g Co., Inc. v. Director of Revenue, 935 S.W.2d 39 (Mo. banc 1996) ("equipment" means fixed assets with permanence; consumables are not equipment)
- Aquila Foreign Qualifications Corp. v. Director of Revenue, 362 S.W.3d 1 (Mo. banc 2012) (interpretation of "processing" disfavored for retail/consumer activities; aligns "processing" with industrial/manufacturing concept)
- Jackson Excavating Co. v. Admin. Hearing Comm’n, 646 S.W.2d 48 (Mo. 1983) (purifying water can be a transformation sufficient to qualify in limited circumstances)
- Hudson Foods v. Director of Revenue, 924 S.W.2d 277 (Mo. banc 1996) ("processing" and "manufacturing" have little to no difference as practical matter)
- Brinker Missouri, Inc. v. Director of Revenue, 319 S.W.3d 433 (Mo. banc 2010) (related exemption analysis relied upon in interpreting processing/manufacturing distinctions)