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Jan Co. Cent., Inc. v. Commissioner of Revenue, 405 Mass. 686, 544 N.E.2d 586

Facts

Jan Co. Central, Inc. operates several Burger King franchises in Massachusetts and sought declaratory and injunctive relief from the Department of Revenue regarding sales and use taxes on paper and plastic products. The company argued that these products were purchased for resale and thus should be exempt from taxation. However, the Department assessed additional use taxes, leading Jan Co. to pay the taxes and file this action.

Jan Co. seeks a declaratory judgment on three counts that: (1) paper and plastic products that the plaintiff buys from suppliers, whether used on or off Jan Co.'s premises, are purchased for 'resale,' and that such sales, therefore, do not constitute 'sales at retail' under the Massachusetts sales tax statute.

Issue

Whether Jan Co.'s purchases of paper and plastic products are subject to sales and use tax as 'sales at retail' and whether these items qualify as exempt 'containers.'

The Supreme Judicial Court, Nolan, J., held that: (1) fast-food restaurants' purchase of paper and plastic products was taxable as 'sale at retail', and (2) items used in restaurant to hold food and drink and not used to remove food and drink from premises were not exempt as 'containers.'

Rule

Sales at retail are defined as sales of tangible personal property for any purpose other than resale in the regular course of business. Items used to hold food and drink for consumption on the premises do not qualify as containers exempt from sales tax.

The Massachusetts sales tax, G. L. c. 64H (1988 ed.), and the use tax, G. L. c. 64I (1988 ed.), are complementary.

Analysis

The court determined that Jan Co.'s purchases of paper and plastic products were not for resale but were incidental to the primary business of selling food and drink. The court applied the definition of 'sale at retail' and concluded that the inherent nature of Jan Co.'s business was the sale of food, not the resale of packaging materials. Therefore, the purchases were taxable.

Applying these principles to this case, we determine that the inherent nature of Jan Co.'s business is the sale of food and drink. Although such sales are facilitated by packaging in a manner convenient to the customer, the basic purpose of the consumer's transaction with Jan Co. is to acquire food and drink.

Conclusion

The court held that Jan Co.'s purchases of paper and plastic products were subject to sales and use tax and that items used in the restaurant to hold food and drink were not exempt as containers. The case was remanded for entry of judgment.

For the reasons stated above, we deny the plaintiff's request for injunctive relief.

Who won?

The Commissioner of the Department of Revenue prevailed because the court found that Jan Co.'s purchases were taxable and did not meet the criteria for exemption.

The plaintiff, Jan Co. Central, Inc. (Jan Co.), brought this action against the Commissioner of the Department of Revenue (department) in the Supreme Judicial Court for the county of Suffolk.

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