ST. PAUL, MN - The Minnesota Supreme Court has declined to overturn two lower court decisions upholding the constitutionality of the state's sales tax law.
The Minnesota Automatic Merchandising Council and Apple Automatic Food Service (Minneapolis, MN), had challenged the current tax code, which took effect in January 2002.
The previous law had distinguished between the sale of food by grocery stores and by restaurants, generally exempting the former from tax. All food sold through vending machines was taxable, since the lawmakers held that vending and restaurant food purchases were "luxuries," while food purchases from grocery stores were "necessities."
The "streamlined" sales tax law no longer refers to the kind of retailer. Rather, it describes the kinds of food that are taxable and those that are exempt. But it continues to levy sales tax on all vended food, without regard to kind.
For this reason, MAMC and Apple Automatic brought suit, charging that the law violates the Uniformity clause of the Minnesota Constitution and the Equal Protection clause of the 14th Amendment to the U.S. Constitution.
In its published opinion, the State Supreme Court summarized the vending industry's argument: "MAMC and Apple contend that the disparate tax treatment of similar prepackaged food items based on whether the item was purchased from a vending machine or a convenience store constitutes an arbitrary classification."
The high court recalled that it had rejected the "similarity of product" test when the vending industry challenged the previous law in 1974 (Associated Food Services Inc. v. Commissioner of Taxation). It found then that, while method of merchandising is a secondary classification, that classification does help accomplish the legislative purpose of taxing food only when sold as a "luxury," thus avoiding the imposition of a regressive tax on "necessities."
"It is true, as MAMC and Apple assert, that with the exception of soft drinks and candy, under the 2001 amendments food is generally exempt from sales tax unless it is sold as 'prepared food,' whether by a restaurant or by a grocery store, or sold through a vending machine," the Supreme Court explained. "But the operative distinction for tax classification is not between vending machine food sales and all other food sales. Rather, the distinction remains between grocery-type food sales and restaurant-type food sales."
In its after-action report on the ruling, MAMC expressed the belief that this distinction is obsolete, but observed that courts generally are reluctant to find that a measure enacted by a legislature is unconstitutional. "The Minnesota Supreme Court has relied on this reluctance to uphold an unfair sales tax law," the association explained.The MAMC board of directors will meet this summer to review its options.