Opinion by JUDGE J. JONES
Jefferson County District Court No. 15CV31189
Honorable Christopher C. Zenisek, Judge JUDGMENT REVERSED AND CASE REMANDED WITH DIRECTIONS Division IV
Opinion by JUDGE J. JONES
Graham and Welling, JJ., concur Silverstein & Pomerantz LLP, Neil I. Pomerantz, Mark E. Medina, Michelle Bush, Denver, Colorado, for Plaintiff-Appellant Williamson and Hayashi, LLC, David S. Williamson, Mathew M. Munch, Boulder, Colorado, for Defendants-Appellees Cynthia H. Coffman, Attorney General, Stephanie Scoville, Assistant Attorney General, Jeremy Hueth, Special Assistant Attorney General, Denver, Colorado, for Amici Curiae Colorado Higher Education Institutions summary judgment and remand the case for entry of judgment in Sodexo's favor.
We apply the 2015 version of the Code throughout.
I. Background
¶ 3 The contract between Sodexo and Mines requires Sodexo to "provide food services for [Mines] students, faculty, staff, employees and invited guests." It defines food services as "[t]he preparation, service and sale of food, beverages, and select goods, merchandise and other items to be agreed upon by [Mines] and Sodexo . . . , including catering, concessions, retail and meal plans." But the contract also says that the food and other tangible items Sodexo provides are deemed Mines' property alone; Sodexo is essentially Mines' go-between for that food. ¶ 4 Sodexo provides food services by operating and staffing all of the dining facilities on Mines' campus, both traditional residential dining facilities and "branded" dining facilities, including the Slate Cafe, Diggers' Den Food Court, Subway, and Einstein Bros. Bagels. A student buying a meal plan from Mines (pursuant to a contract with Mines, as explained below) can redeem her meal plan meals at any of these facilities. The facilities aren't advertised to the public and are used primarily by Mines' students and staff. On rare purchases made with cash, check, or credit card. But the City has also assessed Sodexo sales tax on transactions whereby students swipe their BlasterCards in exchange for meal plan meals in the dining facilities. (Paradoxically, however, the City assesses the tax based on the prices Mines pays Sodexo, not on the prices students pay Mines.) As noted, Sodexo's challenges to this assessment have thus far failed.
The contract contemplates monthly reports, but it appears from the record that Mines may provide weekly reports.
Sodexo concedes that these sales are subject to the sales tax, and therefore they are not at issue.
According to the Code, the purchase price is "the price to the consumer." GMC § 3.02.10. The sales tax rate is "three percent of the purchase price." Id. at § 3.03.10(a). The City claims that the student is the consumer, but the City doesn't assess Sodexo based on the price to that consumer. Rather, it assesses three percent on the lower price Mines pays Sodexo.
II. Discussion
¶ 11 Sodexo contends that the City can't tax it for meals purchased by Mines' students under the students' contracts with Mines because (1) doing so interferes with Mines' constitutional authority to exercise "exclusive control and direction" of its funds and appropriations; (2) doing so unconstitutionally taxes Mines' students' acquisition of education furnished by the State; (3) Sodexo's sales of food to Mines under their contract are excluded from taxation under the Code as direct sales to Mines in its governmental capacity only; and (4) Sodexo does not sell food to students at retail, but instead sells food to Mines at wholesale, and the Code expressly exempts wholesale sales from taxation. Because we conclude that Sodexo doesn't sell food to students at retail, and that the Code's wholesale exemption applies to the sales Sodexo makes to Mines, we don't address Sodexo's first three contentions.
Sodexo urges us to decide this case on constitutional grounds, as do the other public institutions of higher education that have filed a brief as amici curiae. But we avoid constitutional analysis if we can resolve a case on statutory grounds. City of Florence v. Pepper, 145 P.3d 654, 660 (Colo. 2006); see also Taxpayers for Pub. Educ. v. Douglas Cty. Sch. Dist., 2015 CO 50, ¶ 11, cert. granted, judgment vacated, and case remanded, 582 U.S. ___ (2017).
A. Standard of Review and Applicable Law
¶ 12 We review an order granting summary judgment de novo. Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 290 (Colo. App. 2009). We similarly review the interpretation of a municipal ordinance. See Friends of Denver Parks, Inc. v. City & Cty. of Denver, 2013 COA 177, ¶ 45; Leggett & Platt, Inc. v. Ostrom, 251 P.3d 1135, 1140 (Colo. App. 2010) (construing tax ordinances, including a tax exemption provision). Goods Corp. v. City of Arvada, 197 Colo. 491, 496, 593 P.2d 1375, 1378 (1979) ("[T]axing powers and taxing acts will not be extended beyond the clear import of the language used . . . ."); Coors Brewing Co. v. City of Golden, 2013 COA 92, ¶ 18; Noble Energy, Inc. v. Colo. Dep't of Revenue, 232 P.3d 293, 296 (Colo. App. 2010). This first rule requires us to resolve all doubts regarding imposition of a tax against the taxing authority. Associated Dry Goods, 197 Colo. at 496, 593 P.2d at 1378; Noble Energy, 232 P.3d at 296. ¶ 17 Second, we construe tax exemptions narrowly in the taxing authority's favor. Catholic Health Initiatives Colo. v. City of Pueblo, 207 P.3d 812, 817-18 (Colo. 2009); Coors, ¶ 18. This second rule requires us to resolve all reasonable doubts about whether an exemption applies against the taxpayer. Catholic Health Initiatives, 207 P.3d at 818; Coors, ¶ 18; Noble Energy, 232 P.3d at 296. And the taxpayer has the burden of clearly establishing that the exemption applies. Catholic Health Initiatives, 207 P.3d at 817.
B. Analysis
¶ 18 Section 3.03.010(a) of the Code provides that a three percent sales tax "is levied . . . upon all sales of tangible personal property and services specified in subsection 3.03.030(a)." As relevant for purchaser." Id. at 921; see also Coors, ¶ 21 (applying this test to the GMC's wholesale exemption). Mines doesn't alter or use the meals provided to students, and the economic reality of the parties' relationships is that Mines acquires the meals to resell to its students at a higher price. It follows that Sodexo's sales to Mines are wholesale sales under the primary purpose test. ¶ 30 Decisions from other jurisdictions also support our conclusion that Sodexo makes wholesale sales. In Slater Corp. v. South Carolina Tax Commission, 242 S.E.2d 439 (S.C. 1978), for example, the South Carolina Supreme Court interpreted an almost identical statute under practically identical facts. In that case,
[t]he students contracted with and paid the colleges, not [the food service supplier], for the meals. The colleges, in turn, contracted with and paid [the food service supplier]. The colleges, not [the food service supplier], determined who should be entitled to purchase meals at the dining hall, and if a refund was given, it came from the college, not from [the food service supplier].
the contract before it that differ in important respects from the one before us. As the court explained,
All the college did . . . was to collect from each boarding student . . . the amounts the contract stipulated [the food service supplier] was entitled to receive . . . and remit the same to [the food service supplier]. In other words, all the college did was to act in the role of a collection agent, rather than a purchaser.
Id. at 204. The contract in that case "provided that [the food service supplier] should charge boarding plan students . . . $1.68 each per day . . . and that the college should remit the aggregate of such charges collected by it from boarding plan students monthly to [the food service supplier]." Id. at 199-200 (emphasis added). ¶ 33 In contrast to the terms of that contract, the contract between Sodexo and Mines stipulates that Mines will purchase from Sodexo all of the meals it requires to fulfill its contractual obligations to its students, after Mines alone determines the prices and terms of those plans. And Sodexo doesn't charge students. Further, the food service supplier in Prophet Co. contracted to "operate on its own credit and at its own risk of loss," id. at 206, whereas, in this case, only Mines, not Sodexo, bears the risk of loss if a student fails to pay for her meal plan. a tax that, under the correct interpretation, it has no legal obligation to pay. ¶ 36 The City's argument in this case is "tenable" but incorrect. Under the plain language of the Code, Sodexo makes wholesale sales to Mines; Sodexo doesn't make direct sales to students who use BlasterCards. Therefore, under the Code, the City can't assess sales tax against Sodexo.
Given that the City has thus far only sought to tax the BlasterCard swipe transactions, we arguably don't need to determine whether the parties' contractual relationships give rise to any other taxable sales. But we do so out of an abundance of caution, and because the City's assessment is based on the prices Mines pays Sodexo.
The Code also distinguishes wholesale sales from "retail sales" (defined as "all sales except wholesale sales") in the way it defines "retailer": "any person selling . . . tangible personal property . . . at retail." GMC § 3.02.010. As discussed, Sodexo doesn't sell to students at all, and it doesn't sell to Mines at retail. Mines, on the other hand, sells to students at retail.
The City fails to cite any authority for the proposition that a sale can't qualify as wholesale unless the purchaser takes physical possession of the goods.
That the contract between Sodexo and Mines doesn't use the word "wholesale" is, contrary to the City's argument, immaterial. The substance of the transaction is what matters, and nothing in the Code requires the taxpayer to formally label its transactions wholesale.
The court in A.B. Hirschfeld Press, Inc. v. City & County of Denver identified a number of factors a court may consider in this context. 806 P.2d 917, 921 (Colo. 1991). They don't support the City's position in this case, and indeed the City doesn't make any argument along those lines.
Mines gives no refunds.
Our determination also adheres to the more general principle we follow when interpreting tax provisions, as articulated by the Supreme Court in Frank Lyon Co. v. United States:
Where, as here, there is a genuine multiple-party transaction with economic substance that is compelled or encouraged by business or regulatory realities, that is imbued with tax-independent considerations, and that is not shaped solely by tax-avoidance features to which meaningless labels are attached, the Government should honor the allocation of rights and duties effectuated by the parties . . . . [T]he form of the transaction adopted by the parties governs for tax purposes.
435 U.S. 561, 562 (1978). The City doesn't even allege that the transactions at issue are structured solely (or at all) as a tax-avoidance scheme.
We also observe that no other Colorado appellate case has taken this "tenable argument" approach, which treats the mere assertion of a nonfrivolous argument as dispositive. In fact, in Coors Brewing Co. v. City of Golden, 2013 COA 92, the division subsequently construed the same wholesale exemption without using that approach. --------
III. Conclusion
¶ 37 The judgment is reversed, and the case is remanded for entry of judgment for Sodexo and for any other proceedings consistent with this opinion. JUDGE GRAHAM and JUDGE WELLING concur.