On appeal from the Tax Court of New Jersey, 5483-2002 (Campo) and 3209-2002 (Bubbles), whose opinion is published at 22 N.J. Tax 251 (2005).
The opinion of the court was delivered by: Parrillo, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lefelt, Parrillo and Sapp-Peterson.
In this consolidated matter, taxpayers Campo Jersey, Inc. (Campo) and Bubbles, Inc. (Bubbles) appeal from adverse Tax Court determinations upholding sales tax assessments on food items they sold on the basis that appellants' "premises" included the total space of the facilities that customers had to enter to make their food purchases. The issue of how to define "premises" for the purpose of applying the sales tax under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29, to vendors like Campo and Bubbles is one of first impression in this State.
By way of background, beginning in September 1992, Campo, a franchisee of Mrs. Fields Famous Brands, L.L.C. (Mrs. Fields), had a license at the Meadowlands Sports Complex to sell cookies and brownies from free-standing, mobile carts inside Giants Stadium and Continental Airlines Arena. The license agreement called for employees of the general concessionaire, Harry M. Stevens, Inc. of New Jersey (HMS), to perform all labor, including preparation and sale of the cookies and brownies and cleaning of the room where they were prepared, and for HMS to pay them. Campo had no employees or representatives at the stadium or arena except for its president and owner, William Bori, and a manager who collected the sales proceeds daily. The controlling agreements did not grant Campo the right to use any specific areas of the facilities for either preparation or sale of its products.
Campo received deliveries of "quick frozen" cookies from Mrs. Fields that were kept in a freezer in a room on the upper level of the stadium. Prior to an event, Bori decided how many cookies should be baked; HMS employees would bake the frozen cookies in ovens in the room on the upper level, let them cool, and then fill unsealed bags with two cookies each, which they would place on a hand truck and take to the carts for sale. The process for Campo's brownies was similar, except that the frozen dough had to be spread in trays before it was baked, the baked product had to cool for ten hours after baking, and the brownies were packaged singly.
Campo paid sales tax on its receipts at the stadium and arena until 1995 when it first learned of a letter from a tax counselor at respondent Division of Taxation to tax advisors for Mrs. Fields, stating:
Your letter dated February 24, 1986 has been referred to me for reply. In it you raise a question as to the taxability of sales made by a retailer.
Your letter states that a taxpayer operates retail bakery type outlets. As a general rule stores are located in enclosed retail shopping malls. Their principal product is cookies (cookies comprise approximately 90% of total sales), however they also sell other related food products and beverages. In addition to cookies, the taxpayer sells brownies, muffins, milk, coffee, non-carbonated beverages, carbonated beverages, and novelty items (e.g. cookie tins).
Since the taxpayer does not consider its product for immediate consumption and does not intend to compete with such food product retailers, it positions its stores away from mall locations where food courts are provided which facilitate immediate consumption. There are not facilities for seating or food consumption on the premises.
Cookies, brownies, and muffins prepared by the taxpayer are priced by weights. Sales may be made in any quantity desired including by the dozen, half-dozen, or in larger quantities. All bakery products are sold and packaged on a take out basis and all packaging therefore includes instructions for re-heating the product at a later time if desired. The taxpayer also provides mail order services to consumers.
The New Jersey Administrative Code provides in part as follows:
Food or drink sold in an unheated state is not subject to tax when commonly sold in food stores in bulk, by weight, by the dozen (or part thereof) or by volume (gallon, quart, etc.) for off premises consumption.
1. The exemption for food or drink provided in this paragraph does not include any item classified as a candy or confectionary or carbonated soft drinks and beverages. N.J.A.C. 15:24-12.3(a)4.
Based upon the facts submitted for review, it is the opinion of this office that (1) the sales by the taxpayer of baked goods including cookies, brownies, muffins, and non-carbonated beverages and milk are not subject to sales tax in New Jersey; and
(2) the retail sales of carbonated beverages, hot coffee and novelty and other non-food items are subject to sales tax.
It may also be noted that since production is done on the premises from raw materials to a finished product some equipment may qualify for sales tax exemption as production equipment . . . .
Instead of relying on the letter, Bori sent his own inquiry to respondent, which is not in the record. Nonetheless, on February 17, 1995, a Tax Service Specialist in ...