Collester, Lynch and Michels. The opinion of the court was delivered by Lynch, J.A.D.
Plaintiff, representative of approximately 160 automatic vending machine operators in New Jersey, appeals from a decision of the Division of Tax Appeals which upheld the validity of Rule 4 adopted by the Acting Director, Division of Taxation, purportedly pursuant to his authority to adopt regulations "appropriate to the carrying out" of the purposes of the Sales and Use Tax Act.*fn1 N.J.S.A. 54:32B-24. Rule 4, later codified as N.J.A.C. 18:24-16.7(b), reads as follows:
(b) There is no exemption for items subject to tax pursuant to subsection 3(c),*fn2 such as carbonated beverages, hot drinks, sandwiches and other prepared foods.
The effect of the adoption of Rule 4 was to make taxable -- for the first time since the enactment of the Sales Tax Act in 1966 -- all sales at $0.10 or less of "prepared foods" (as understood by the Director) from coin-operated vending machines.
For the period of four years prior to the adoption of Rule 4 the Director had held that such sales were exempt under N.J.S.A. 54:32B-8(i).*fn3 That section grants exemption to:
(i) Tangible personal property sold through coin-operated vending machines at $0.10 or less provided the retailer is primarily engaged in making such sales*fn4 and maintains records satisfactory to the director.
The reasoning projected by the Director in defense of his adoption of Rule 4 is that the exemption granted in subsection 8(i) applies only to items taxable under subsection 3(a) and that "prepared foods" (such as "carbonated beverages, hot drinks, sandwiches and other prepared foods," mentioned in Rule 4), are taxable under subsection 3(c) and not subsection 3(a), as they had theretofore been considered to be. Subsection 3(c) makes taxable:
(c) Receipts from the sale of food and drink * * * in or by restaurants, taverns or other establishments in this State, or by caterers, including in the amount of such receipts any cover, minimum, entertainment or other charge made to patrons or customers:
(1) in all instances where the sale is for consumption on the premises where sold;
(3) In those instances where the sale is for consumption off the premises of the vendor, and consists of a meal, or food prepared and ready to be eaten, of a kind obtainable in restaurants as the main course of a meal, including a sandwich, except where food other than sandwiches is sold in an unheated state and is of a type commonly sold in the same form and condition in food stores other than those which are principally engaged in selling prepared foods.
The Director justifies bringing vending machine sales of "prepared foods" within Section 3 by equating them to ...