ST. LOUIS - In Aquila Foreign Qualifications Corporation v. Director of Revenue, Missouri's Supreme Court denied a convenience store/restaurant a partial sales tax exemption for electricity used to prepare food for sale.

The exemption [Section 144.054 RSMo] allows Missouri taxpayers to claim a partial exemption on utilities, machinery, equipment, and materials used or consumed in manufacturing, processing, compounding, mining, or producing any product. When the Missouri Legislature added Section 144.054 to the statute in 2007, the new exemption was described as pro-business legislation designed to allow Missouri to compete with surrounding states.

Casey's General Stores used the electricity to power machinery and equipment to prepare food for sale. Aquila Foreign Qualifications Corporation, an electric utility, filed a sales tax refund claim on behalf of its customer, Casey's.

In a hearing before the Administrative Hearing Commission, Casey's demonstrated that its food preparation activities were "processing" as defined in Section 144.054. Casey's took raw materials, such as flour, water, tomato sauce, meat, and cheese, and through a series of procedures utilizing a variety of equipment, transformed the materials into a finished product ?" a cooked pizza.

Although the Missouri Department of Revenue argued that the interpretation of "processing," according to Casey's, was overly broad and would have significant impact on state revenue, the commission ruled in favor of Casey's.

The court overturned the commission??s decision, finding instead that the statutory definition of "processing" was ambiguous. Using the "industrial connotations" of other qualifying activities (manufacturing, compounding, mining, and producing any product), the court concluded the Legislature did not intend "processing" to include the preparation of food for retail sale.

The in-store processing used by Casey??s qualifies for sales tax exemptions in other states, including Kansas and Iowa.