### IN THE COURT OF APP EALS OF TENNESS EE AT NAS HVILLE Ma y 7, 200 4 S es sio n SOD EXH O MA NA GEME NT, INC ., v. R UTH E. JOHNS ON Appeal f romthe Chancer y Court for Davidson Cou nty No. 98-3318-III Ellen Hobb s Lyle, Chancellor

No. M2003- 00660-COA-R 3-CV- F iled Novem ber 8, 2004

Th is dis pu te ari se s fr om the a sse ssm e nt of the “ c on tr a c tor ’s us e ta x” a g a ins t So de xho M a na g e me nt, In c
. f o r i t s u s e o f p e r s o n a l p r o p e r t y o w n e da n du t i l i t i e s p r o v i d e db y D a v i dLi p s c o mb U n i v e r s i t y. Sodex ho used the univer sity ’s prope rty to provide food service for the tax -exempt university . The Commi ssioner assessed a use tax on the value of the per sonal property and utilities provided by

the university beca use the univer sity , as an e x empt org anization, had not previouslypaid sales tax. The piv otal is su e is w he the r Sod e xho op e rate d the fo od se rv ic e a s a n a g e nt of the ta x exempt u niv e rs ity or a s an inde pe nd e nt co ntr a c tor

. Th e Chanc e llo r he ld that So de xho w a s an a g e nt o f the un ive rs ity and that no use tax was owed. We reve rse, f inding that Sodexho did not carry its burden of proof to e s ta b li s h th a t i t w a s a n a g e n t o f th e u n iv e r s ity

a n dth u s is li ab lef

o r th e u s e tax. Tenn. R. App . P .3 Appeal as of Right; Judgme nt of th e Chancer y Court Reve rsed and Rem anded
F RAN K G. C L EME NT , J R ., J ., delivere d the opinion of the court, in which W I L L I AM C. K O CH , J R ., P.J ., M.S., and W I L L I AM B. C A IN , J ., joined.
Paul G . Summe rs , Atto rn e y Ge ne ral and Re po rt e r; Mic ha e l E. Moor e , Solic ito r Ge ne ral; an d Wyla M. Posey , As s i s t ant Att orney Gene ral, for

the appe llant, Ruth E. J ohnson, Commi ssioner of Revenue , State of Tenne ssee. Patricia H ea d M o s k al and Joseph W. Gibbs , Nashville, Tenne ssee, f or the a ppellee, Sodexho Manag ement, Inc. OP IN ION
Th e iss ue is wh e the r Sod e xho Mana g e me nt, I nc ., (S od ex ho ) (forme rl y Sod e xho- Ma

rriott M anag em e n t S e r v ic e s ) , a f o r
- p r o f it c o rp o r a ti o n , o p e r a te dth e f o o ds e r v ic e o p e r a ti o n s o f th e taxexempt, not-for-prof

it David Lipscomb University (“the university ”) as an indepe ndent contra ctor or as an ag ent. I f Sodexho oper ated the food service ope rations of the unive rsity as an inde pendent contra ctor, then Sodexho owes use tax on the persona l propert y an d u t i l i ties provided by theT ho ugh a s m al l am o unt of sal es t ax was as ses sed t o So d exho fo r t he sal e o f ba nners at t he uni vers i t y l o cat i o n, 1

s al es t ax i s not an i s s ue. A t ot al of $10 8. 00 was esti mat ed for t hes e s al es an d was as s es s ed t o So dexho. T he part i es s t i pul at ed t hat onl y t he us e t ax as s es s ed was i n di s put e. T hu s onl y t he us e t ax i s at i s s ue.

I t i s u n di s pu t ed t h at s al es t ax w as n ot pr ev i ou s l y pa i d. 2
-2- un ive rs ity that So de x ho us e d inthepe rf orma nc e of

its c on tr a c ts. I f S od e xho a c te d a s an a g e nt i t does not owe use tax beca use S odexho would be considere d the same e ntityas the univer sity , and thu s – lik e theun ive rs ity

– w ou ld b e ta x-e xemp t.
The tax at issue is the “use tax” (a lso refe rre d to as the “c ontrac tor’s use tax”). Tenn. Code 1 An n. § 6 7- 6- 20 9( b) . T he us e ta x wa s a sse sse d a g a ins t So de xho – no t th e un iver sity

– d ue to Sodex ho’s use of the university ’s persona l pr operty in the perf ormanc e of its food service s. The tax in Tenn. Code Ann. § 67- 6-209 is a tax on the contractor’s use o f th e t a n g i b l e p e r s o n a l p r o p e rt y. Th e statut e pr ov ide s th a t c on tr a c tor s a rethec on su me rs of

theite ms o f t a ng ibl e pe rs on a l pr op e rty they use i n the performanc e of their contracts. The use at i ssue i s considere d a separateand distinct taxable activity

. United States v. Boy d , 378 U.S. 39, 44 (1964)(w hen a c ontrac tor uses prope rty for its own private ends, the use tax is owed, r eg ardle ss of whether its c ustomer is a tax-ex empt entity ). The two c ateg ories of use tax assessed a g ainst Sodex ho at issue ar e (1) customer pr ovided assets and (2) c ustomer provided e x penses ( utilit ies).
“Customer Provided Assets” areassets used by Sodex ho in the oper ation of the univer sity ’s food service. Theassessment does not include assets that we re installed a s im p ro vements to real property or fixed assets. It does howeve r include a ssets that the university provided to Sodexho t hat did not become part of the real property , such as pots, pans and tools of t he trade. Tenn. Code Ann. § 67-6-209( b) and § 67- 6-102(31)

.

“ Cus tom e r P ro vid e d E xpe ns e s” are uti lit ie s p ro vid e d b y theun ive rs ity

that So de xho u se d in theop e ratio n o f the un ive rs ity ’s fo odse rv ic e . T he ut il it ie s a sse sse d a rec on sid e re d to be ta ng ibl e persona l property , including e lectric ity , natura l or artificia l g as and water. Te nn. Code Ann. § 67-6- 209(b) and § 67-6-102( 31).
Cus tom e r p ro vid e d a sse ts an d cu sto me r pr ov ide d expe ns e s a resu bje c t to thec on tr a c tor ’s us e tax i f no sales or

use tax was previously

paid befor e being used by Sodex ho. Tenn. Code Ann. § 2 67 -6 -2 09 (b )( Sup p. 19 90 ). Th e us e of ta ng ibl e pe rs on a l pr op e rty in thepe rf orma nc e of

a c on tr a c t is taxable “whethe r the titl e t o s u ch property be in the contr actor , subcontrac tor, contra ctee , su bc on tr a c te e , o r any oth e r pe rs on , or wh e the r the tit le ho lde r o f s uc h p ro pe rty wo uldbe su bje c t to pay thesa le s o r u se ta x.” Te nn . Co de An n. § 6 7- 6- 20 9( b) . T hat st a tut e pr ov ide s: (b) W h er e a co n trac tor or subcontra ctor . . . uses tang ible persona l property in the perf ormanc e of his contr act, or to fulfill contrac t or

subcontrac t obligations, whe ther the title to such propert y be in the contr actor , subcontrac tor, contra ctee , su bc on tr a c te e , o r any

oth e r p e rs on , o r wh e the r thetit le ho lde r o f s uc h p ro pe rty wo uld be subjec t to pay

the sales or

use tax, . . . such contra ctor or subc ontrac tor shall pay-3-

a tax at the rate presc ribed by § 67-6-203 mea sured by t h e p u rchase pric e of suc h property , unless such prope rty has been previously subjected to a sales or use tax, and the tax due thereon ha s been paid.
The Commissioner bear s the initial burden of proving that Sodex ho is subject to the use tax at issue. See P rodigy Servic es Corp. v. Johnson , 125 S.W .3d 413, 416 (Tenn. Ct. App. 2003). If the Com mis sio ne r m ake s o ut su c h a c a se , Sod e xho the n be ars the bu rd e n o f p ro vin g that it is e xemp t, see Jack Daniels Distill ery, Lem Motlow, Prop. v. Johnson , 740 S.W .2d 413, 416 (Tenn. 1987) , and there is a presumption ag ainst exempti ons. See Kingsport Publishing C orp. v. Olsen , 667 S.W .2d 745, 746 (Tenn. 1984)

. It is undisputed that the university is an exempt entityand that no tax would be owing if the un ive rs ity pr ov ide d th e fo odse rv ic e a t is su e . M or e ov e r, it i s un dis pu te d that Sod e xho w ou ld also be exempt and that no tax would be owing if Sodex ho’s use of the university ’s per sonal property was in the capacity as t he age nt or servant of the university , as distinguished f rom that of an inde pendent c on tr a c tor , b e c aus e a n a g e nt ( or c on tr a c tor ) s te ps int o th e sh oe s of its ta x-e xemp t c lie nt w he n it is a servant of that c lient. U.S. v. Boy d , 3 78 U. S. at 44 -4 8; G e h l Co r p . v . J o h n son , 9 9 1 S.W .2d 246 (Tenn. Ct. App. 1998), perm. app. de n’d , (1999). F or Sodexho t o be subjec t to the use tax assessment, what matters is that Sodex ho used the prope rty in the perf

ormanc e of its food service contra ct for its business purposes in its capa city as an inde pendent c on t ra ct o r, n ot as an a g ent or servant.
An eleme nt of the ag ency relationship i s that the object of the contra ct be f or the benef

it of theprinc ipal. Th e te st is wh e the r the princ ipal ha s a ri g ht to c on tr ol the c on du c t of the a g e nt w ith respe ct to matters entr

usted to the ag ent. The “rig ht of control is the primary or essential test of an ag ency relationship wit hout w hich no ag ency exis ts. [citations om itted] The samestandard a pplies when the a g ency

relationship i s impli ed: the rig ht of the principal to control the ag ent’s conduc t or the actual exercise of such control is the essential test.” Nidif fer v. Clinchfield RR. Co. , 600 S.W .2d 242, 245 (Tenn. Ct. App. 1980). The dist inctions betwee n an indepe ndent contra ctor and an ag ent arenot alway s easy to determine, and there is no uniform rule by which they

may be diffe rentiate d. Carbide & Carbon Chem ical Corp. v. Carson , 239 S.W .2d 27, 31 (Tenn. 1951) . Our SupremeCourt discussed the diff

ere nces be tween thetwo and stated:
Gene rally the distincti o n b etwee n the re lation of principal and ag ent and e mploy er and indepe ndent contra ctor is base d on the ext ent of the c ontrol exercised ove r the employ ee in the pe rformanceof his work, he be ing an independe nt contrac tor if the wi ll o f th e e mp lo y e r is r e p r e s e n te d o n ly b y th e r e s u lt , b u t a n a g e n t w here the e mpl oy e r’ s w ill is r e pr e se nte d b y theme a ns a s w e ll a s th e re su lt. United States v. Boy d , 363 S.W .2d 193, 197 (Tenn. 1962) , aff’d , 3 7 8 U. S

. 3 9 (1 9 6 4 ) ( ci t i n g, Carbide , 239 S.W .2d at 31; 2 C.J .S., Age ncy , § 2, p. 1027).-4-

Courts of this state h av e fr equently analy zed the type and de g reeof control principals and employ ers e x ert ove r ag ents and servants. Y ear s ag o our supre me court concluded that, as a pra ctical matter, every contra ct for work to be done rese rves to the principal or employ er a ce rtain deg reeof control bec ause some de g reeof control is nec essary to assure that the work is performed a ccor ding expectations or specifications. Odom v. Sanford &Treadway , 299 S.W . 1045, 1046 (Tenn. 1927)

. The e mploy er may

exercise a l i mited control over thework without rende ring the employ ee a m ere servant, for the relation of m aster and s ervant is not infera ble from the re servation of powers which do not deprive the contra ctor of his rig ht to do the work a ccor ding to his own initiative so long a s he does it in accor d an ce with the contract. The c ontrol of the wor k rese rved in the e mploy er w hich makes the employ ee a

mere servant is a

control, not only

of the re sult of the work, but also the means and the manner

of t he performance thereof ; wher e the employ ee r epre sents the will of the employ er a s to the result of the wor k but not as t o the means or manner of a c c omp lis hme nt, he is an in de pe nd e nt c on tr a c tor. Th us a pe rs one mpl oy e d to perf orm ce rtain work is not nece ssarily a mere servant be causethe contra ct provides that the work shall be subject to the approval or satisfac tion of the employ er. Such a provision is not an assumption by the employ er of

the rig ht to control the employ ee as to the details or methods of doing the work, but is only that the employ er may

see that the contra ct is car

ried out ac cording to the plans.
Odom , 299 S.W . at 1046, quoting 14 R.C.L . 67; See also W ilson v. Memphis Pub. Co., 231 S.W .2d 404 (Tenn. Ct. App. 1950) cert. de n’d , ( 19 50 ); Grace v. Louisville & N.R. Co., 89 S.W .2d 354 (Tenn. Ct. App. 1935), cert. de n’d , (1936).
The fa ctor that distinguishe s contrac tors from ag ents is that t h e co n trac tor is using the property “in connec tion with its own c ommercia l activities.” Boyd, at4 5 (q u o t i n g United States v. Townshi p of Muskegon , 355 U.S. 4 8 4 , 4 8 6 (1958)) . The United States Supre me Court further commented that the f

act the pr operty

was being used for the principa l’s benef it was irre levant for

that is true in virtual l y ev er y m anag ement contr act. United States v. New Me xico , 455 U.S. 720, 739 (1982). The New Mex ico court observe d that the fac t fede ral prope rty involved was be ing use d for the Government’s bene fit was irre levant, what mattered w as the fa ct that the contractors r emained distinct entiti es pursuing “private ends” and their a ctions remaine d “commer cial ac tiviti es ca rried on for pr ofit.” New Mex ico , 4 5 5 U. S

. at7 3 9 , q u o t i n g Boyd , 3 78 U. S. at 44 -4 5. Whe n d e a lin g wi th iss ue s si mil ar t o tho se pr e se nte d he re , thi s c ou rt fo un d th e ke y fa c tor s to be theprinc ipal’ s “ ri g ht t o control” and the “e x tent of control” the principa l actually exerted. Se e Ed

win B. Ra sk in Co. , v . R uth E. Johnson , No.01-A- 01-9708-CH-00392, 1998 WL 242605 (May

15, 1998 Tenn. Ct. App.).T h e food s er v i ce s w er e pr ov i ded on t h e u n i v er s i t y ca mpu s an d at t h e u n i v er s i t y ’ s h i g h s ch ool , mi ddl e s ch ool 3

a n d e le m e n ta ry sc h o o l.

T he A greem ent ackno wl ed ged t hat t he uni vers i t y ’ s fo o d ser vi ce o p erat i o n “ i s m ai nt ai ned as an i nt egral pa rt 4

o f t he U ni vers i t y ’ s ed ucat i o nal act i vi t i es s o l el y fo r t he use o f st ud ent s, facul t y , st af

f , e m p l o y ees, i nvi t ed guest s and other s des i gn at ed by U ni ver s i t y
. ”

T h e Agr ee men t a n d Sode x h o’ s br i ef i den t i f i ed t h e par t y a s a M ar r i ot t , n ot Sode x h o. 5

P a re n the tica l re fer e n c e s a re to the p a ra g ra p h s in th e A g re e m e n t. 6

A l l meal pl ans wer e f

or s eve n day s a w eek

. P l an A i ncl uded 2 1 meal s p er week, pl an B i ncl uded 15 meal s per 7 week, and p l an C i ncl ud ed 10 m eal s p er week. -5- Ou r an a ly sis sta

rt s with the a g re e me nt (A g re e me nt) the un ive rs ity e nte re d into wi th M arriott Corporation (Sodexho) for the manag ement and ope ration of the unive rsity ’s food serv i ce s
. The 3 stated purpose of the Ag reem en t wa s t o retain Sodex ho to “manag e and ope rate ” the univer sity ’s f o o ds e r v i c e o p e r a t i o n s
. T h e A g r e e m e n ti d e n t i f i e dth e p art i e s ’ r e l a t i o n s h i p a s o n e o f a g e n c y: 4 2.1 Ag ency

Relationship. Unive rsity g rants [Sodex ho], as ag ent for U niversity , the e xclu si v eri g ht t o mana g e a ndop e rate theF oo d Se rv ic e . T o a c c omm od a te Un ive rs ity a n dto f a c il it a tea c c o u n ti n g a n dc o n tr o l o f in v e n to r ie s to b e u ti li ze db y [S o d e xh o ], [S odexho] shall purcha se food and supplies in its name, as ag ent for U niversity , and sh a ll p a y theinv oic e s.
Th a t pa ra g ra phfurth e r r e a d, “ As princ ipal, [the un ive rs ity ] ma y su pe rv ise[Sod e xho’ s] daily operation of the Food Service, including working conditions for F ood Service emp loy ees and the safe ty , sanitation, and maintenance of the Food Service f

acilities.”
Sodex ho identified ce rtain provisions in the Ag ree ment that it arg ues ar e indicative of the university ’s rig ht to control the food services ope rations. The pr ovisions S odexho emphasiz ed i n cl u d e t h e f

o l l o wi n g:

• Right to R egu late Ope rations. The unive rsity rese rved the rig ht to make rea sonable re g ulations with reg ard to the f ood s er v i ce ope rations and [S odexho] was re quired to comply within a rea sonable time. (¶ 2.1) 5 6

• Right of Ac cess. Unive rsity repr esentatives had ac cess to the f ood service fac iliti es at a ll reasona

ble times. (¶2.1)

• L ocations/Meal Plans. [S odexho] was require d to pr ovide Food Service f or theun ive rs ity ’s re sid e nt d ini ng patr on s at nine sp e c if ie d lo c a tio ns in acc ordanc e with the mea l plans selec ted by the university . (¶¶ 3.1, 3.2) 7-6-

• Se c on ds po lic y

a ndSe rv ing Style . [So de xho] wa s re qu ir e d to se rv e a ll m e a ls caf eteria sty le. Most meals included unli m i t ed serving s of food and bever ag es. (¶

¶3.3, 3.4)

• Menus and Prices. All menus and price s wereto be re commended by [S odexho] , but weresubject to university approval. (¶3.5)

• L ocations and Price s. [S odexho] was re quired to provide retail sales at two sp e c if ie d lo c a tio ns , w ithpric e s to be de te rm ine d b y themutua l a g re e me nt. (¶¶ 4.1, 4.2)

• Manag ement Non- hire. Theparties a g ree d t h at they would not hire the other’s manag ement employ ees f or specified periods following termination of the e mploy ee or

the Ag ree ment. (¶5.4)

• Of

fi c e F a c ili tie s. Th e un ive rs ity ow ne d an d pr ov ide d o ff ic e fa c ili tie s, including e quipment and furniture , at no cost to [S odexho] . (¶6.3)

• Cleaning /Sanitation. [ Sodex ho] was responsible for the us ual and c ustomary cleaning of food service are as. The unive rsity was re sponsible for cle aning window, walls, ce ilings, dra pes, fixtures, etc. (¶ 6.6)

• Ma int e nanc e . T he un ive rs ity wa s r e qu ir e d to fu rn ish its ma int e nanc e sta ff to maintain food service facilities and equipment at i ts cost, including labor and supplies. (¶6.7)

• Utili tie s. Th e un ive rs ity wa s r e sp on sib le fo r the c os t/p ur c ha se of uti lit ie s. (¶6.9)

• Working Capital. The university deposited $85,000 in October of ea ch y ear to offset [Sodex ho’s] operating expenses. Any unused portion was to be cre dited to the university

at the end of

the y ear . (¶7.1)
Th e Com mis sio ne r c ou nte re d a sse rting that So de xho w a s n ot a me rea g e nt o f the un ive rs ity for it bore the risk of loss from its food service s operations, any profit it made wa s not paid to the university , rathe r Sodexho retained the profits, Sodex ho not only had the right to contr ol the means and methods of its operat i o n s, namely ordering, pr eparing, and serving food and manag ing the proce ss, Sodex ho indeed did contr ol the means and meth o d s o f i ts operations, that Sodexho employ ed and paid “its” worke rs to conduct the f ood serviceoperations, and Sodex ho had its own chain of command for

manag ement of its food service ope rations and the c hain of c ommand did not i n c l u d e t h e u n i v e r s i t y.T h e c h a n c e llo r sp e c ifi c a lly c re d ited th e te stim o n y o f C a rl M c K e lve y, D a v id M a yo a n d M ic h e lle B a g le y w ith 8
t hi s f i nd i ng. T he chancell o r ci t ed t he t est i m o ny of M r. M cK el vey, t he uni vers i t y ’ s vi ce p res i d ent of cam p us af f ai rs , who
c h a ra c te riz e d the r e la tio n sh ip a s “a n o u t so u rc e c o n tra c t” a n d tha t t h e d ire c to r o f b u sin e ss o p e ra tio n s a t t h e un ive rs ity

-- w ho p erfo rm ed q ua l i t y co ntro l a nd m o nit o red S o d ex ho ’ s fo o d service s o p era t i o ns fo r t he unive rsi t y - - D av i d M ayo also charact eri zed i t as o ne o f “o ut sourci ng” and M i chel l e B agl ey, fo o d s ervi ces di rect o r f o r So d exho , t est i f

i ed t hat what t he
u n ive rs ity w a s lo o k ing fo r w a s a n “e n d re su lt. ” -7- The Ag ree ment is a rele vant factor; however, it is not the onl y rele vant factor. The conduct of the pa rties is also rele vant. Ra sk in , 1998 WL 242605, at * 2. The issue in Ra sk in was whe ther the private manag er (Raskin) of a city -owne d g olf course was entitled to the city ’s exemption from th e us e ta x. He re , th e un ive rs ity ha d th e ri g ht t o c on tr ol m a ny a sp e c ts o f S od e xho’ s o pe ratio ns ; howe v er , t h e mere exis tenceof the rig ht to control certain aspec ts of another ’s oper ations is not determinative of the a g ency issue. Se e Ra sk in , 1998 WL 242605, at * 2. As pronounce d in Boyd and Ra sk in , our dete rmination should be based on the extent of control exercised ove r the ag ent/contra ctor including whether the principa l retaine d and exerc ised control over t h e means of acc omplishi ng the re sult as disting uished from controlling the re sult but notthe means. See B oyd , 36 3 S. W.2 d at 19 7; Ra sk in , 1998 WL 242605, at * 2. A deg reeof control is not determinative for every contra ct for work rese rves to the employ er/princ ipal a ce rtain deg reeof control. Odom , 299 S.W . at 1046. The c ontrol of the wor k rese rved to the principal which make s the age n t a mere servant is a control not only of the re sult of the work but of the me ans and the manner of the perf ormanc e. Id. , at 1046. Where the ag ent re prese nts the will of the principal a s to the result of the work but not as to the means or manner of acc omplishi ng the work, it is an indepe ndent contra ctor. Id. , at 1046.
Her e, the c hance llor rende red two me morandum opinions. She made numer ous findings of fa c t, the bu lk o f w hic h a

restate d inthefi rs t op ini on . We be lie ve themor e sig nif icant fi nd ing s to be thefo llo wi ng :

• The re lati o n ship was “morea re sult-oriented one in which [S odexho] was re t ai n ed t o u s e i t s s p ec i al i z ed ex p er t i s e t o ef fi ci en t l y an dwi th q u al i t y

m an age a n do p e r at e th e f

o o ds e r v i c e s ” a n d“ l e s s a

r e l a t i o n s h i p w h e r e [ th e u n i v e r s i t y] controlled the plaintiff’s duties.”

• The univer sitywas “ looking f or the e nd result and that the plaintiff ac ted as a n outs ou rc ing c on tr a c tor ,” that the un ive rs ity ha d “trie d uns uc c e ssf ull y to operate the food se rvice s operation,” th at i t “wante d its food service s to be more e fficie nt and provide be tter quality for the stude nts.” 8

• Sodex ho was “ left to its own devices w ithin it s field of e x pertise.”

• T h e A gre e m e n tp ro v i d ed th atS o d ex h o h ad th e “ ex cl u s i v e r i gh tt o m an age and oper ate the F ood Service .”T he chancell o r f o und ther e were t wo pe rs o nnel i ss ues i nvo l vi ng i nt eract i o n be t ween a S o d exho em p l o y ee and 9
st ud ent s and an al l eged t hef t , where the uni vers i t y w as i nvo l ved in t erm i nat i o n o f t he em p l o y ee; nevert hel ess , s he fo und t h at , t h e s e i n c i d e n t s w e r e n o t i n d i c a t i v e o f a n e x e r c i s e o f

c o n t r o l o v e r S o d e x h o ’ s p e r s o n n e l

. Ho w e v e r , t h e c h a n c e l l or a lso fo u n d th a t S o d e x h o “ h ire d , fire d , p a id sa la ry a n d b e n e fit s a n d tra ine d fo o d se rv ic e s e m p lo ye e s a n d tha t t h e p la intiff
c o n tro lled ho w the fo o d w a s p re p a re d .”

S o d e x h o c o m m e n c e d this a c tio n se e k ing a re fun d o f u se ta x a sse sse d o n its u se o f eq u ip m e n t an d utilit ie s in 10

c o n n e c tio n w ith its m a n a g e m e n t o f f o o d se rv ic e s fo r E rla n g e r H o sp ital in C h a ttan o o g a a n d D a v id L ip sc o m b U n ive rs ity i n N ash vi l l e. I ni t i al l y t he cha nce l l or h el d i n favor of Sod exh o concer ni ng E r l ang er but i n favor of t he C om mi s s i oner conce r ni ng t he un i ver s i t y
. O n r econs i dera t i on, t he cha nce l l or r eve r s ed he r s el f s t at i ng t hat s he “ er r oneous l y ar r i ved a t i t s conc l us i on t hat [ Sod exh o] did n o t p r ove a gen cy wi t h r es pect t o t he [ un i ver s i t y ] cont r act becau s e t he proof on t hat
co nt ract was not as p o nd erous as t he p roo f on t he E rla n g er contr act

. ” T he C o m m i ss i o ner onl y ap p eal ed t he rul i ng c o n c e rn ing the un ive rs ity, no t E rla n g e r. -8- • The proof

showed that Sodex ho “contr olled cooking and food pr epar ation,” that a primary

part of the task of food pr epar ation and service wa s the personne l to prepa

re and serve the food and training personnel , wh ich Sodex ho was re sponsible for, and that Sodex ho “contr olled the per sonnel of the food services ope ration.”

• Th e Ag re e me nt held S od e xho “ so le ly re sp on sib le fo r the e mpl oy e e s o n it s pay roll” and tha t S o d exho made the dec isions to hi re and fire nonma na g e me nt e mpl oy e e s andtho ug h M r. May o, dir e c tor of bu sin e ss operations for the university , was a ssigne d to monitor S odex ho’s food se rv ic e s ope ratio n, he ha d no au tho ri ty to h ir e or fi reSod e xho’ s e mpl oy e e s. 9
I n the first memorandum opinion, the chance llor rea ched the leg al conclusion that S odexho had failed to prove that it wa s t h e u n i v er s i ty ’s ag ent for pur poses of the c ontrac tor’s use tax. On re c on sid e ratio n, ho we ve r, thec hanc e llo r r e ve rs e d he r ru lin g by c on c lud ing that sh e ha d e rr on e ou sly compar ed the f

acts at issue w ith those in the Erlang er Hospital dispute and that she should not have 10 deeme d as irre levant spec ifications for the types of food or price s and fac ts suc h as whe re the food was served and the hours of ope ration. Thoug h the chancellor c hang ed her opinion on whether Sodex ho was the unive rsity ’s ag ent, she did not resc ind her finding s of fac t in the first memorandum opinion. The chancellor state d that she should have c onsidered othe rs fa ctors as more re levant and should have place d less emphasis on t he diffe renc es with the Erlang er H ospital dispute. Thus, they stand as the chance llor’s finding s of fact, which are entitled to our review with a pr esumption that t h e f a c t u a l f i n d i n g s ar e c o rr e c t , ab s e n ta s h o w i n g th a tth e e v i d e n c e p r e p o n d e r a t e s t o th e c o n tr ary. Te nn . R. Ap p. P. 1 3( d) ; see Be rryhill v. Rhodes , 21 S.W .3d 188, 190 (Tenn. 2000)

. We a g re e wi th the pa

rt of the c hanc e llo r’ s se c on d op ini on wh e re in s he de te rm ine d th a t le ss emphasis should have been placed on the di ffe renc es wit h the Erlang er H ospital ag ree ment and that time and placewer e re levant fa ctors but we dif fer with the signific ancethe chancellor pla ced on the latter. Time and placeare rele vant when c onsidering ag ency ; however , all such ag ree ments arefac t intensive and one of the pertinent fac ts he re is that theenter prise at issue is a f

ood serviceoperation. Thus, it is l ess sig nificant that the locat i o n s o f the food se rvice operations were e stablished in theA n a nal o go us exam p l e wo ul d b e t hat of a p ri nci p al requi ri ng a co nt ract o r t o co nst ruct a road and requi ri ng 11 tha t i t b e p a v e d w ith a sp h a lt ins te a d o f co n c re te

.

Jo hn So b rero, fo rme r di st ri ct m anager fo r So d exho , t est i f i ed t hat So d exho e m p lo y ees were s ub ject t o t he 12 uni vers i t y ’ s st and ards of co nd uct whi l e t hey were o n t he cam p us. T hey were no t s ub ject t o pe rs o nnel po l i ci es of t he
u n ive rs ity. -9- ag ree ment beca

use most food servic e operations a re stationery

. It was also less sig nificant that the hours of ope ration we re e stablished in the ag ree ment for f ood service o p er at i o n s in schools have customary hours of opera tion. We also f

ind thefac t that the university controlled the ty

pe of f ood rele vant but not overly

signific ant because the require ment that Sodex ho provide c afe teria style food o r a n o th e r ty p e o f f o o d is mo r e a

c o n tr o l o f

th e r e s u lt th a n th e me a n s o r

man n e r o f o p e r a ti o n
. We

11 the re fo rea g re e wi th the c hanc e llo r that th e se arere le vant f a c tor s b ut f

ind the ir re le vanc e to b e le ss signific ant.
We now return to the Ra sk in opinion for the fa cts thereand her e ar e similar but we do not find them to be “on all fours” a s Sodex ho char acterized them in its brief. Upon ex amination of the contra ctual provisions and the courseof dealings be tween Ra skin and the City of He ndersonville, it is apparent that the c ity had more control and e x erte d more c ontrol t h an t h e u n iversity had or exerted. F or example, all of R askin’s net operating profits wer e paid ove r to the city while Sodexho re ta ine d th e op erat ing ne t in c omea ndon ly paid the un ive rs ity

a small p e rc e nta g e of

its pr of its ; Raskin was paid a g uaranteed minimum annual fe e of $40,000, a ssuring Raskin of being c omp e ns a te d f

or its se rv ic e s w hil e Sod e xho b or e theri sk of lo ss ; thepr oc e e ds of

theg olf c ou rs e operation belonge d to the city and Raskin’s bank ac co u n ts wereacc essible to the city at all times while the proce eds of the food service ope ration belong ed to Sodexho and the university mere ly had the rig ht to audit the acc ounts; and Raskin’s personne l policies weresubject to the city ’s appr oval while S odexho’s employ ees were only subject t o the uni versity ’s standar d of conduc t while on the c a mpu s. 12
Makin g thede te rm inatio n th a t Sod e xho is a n ind e pe nd e nt c on tr a c tor or a n a g e nt i s c e rt a inl y not easy . This is due in part t o t h e fa ct t hat such de terminations arefac t intensive and thereis no uniform rule by which they may be dis tinguished. Carbide & Carbon Chemical Corp. v. Carson , 239 S.W .2d 27, 31 (Tenn. 1951) . “Ge nerally the distinction betwe en the relation of principal and ag ent and e mploy er and independe nt contrac tor is based on the e x tent of the control exercised ove r the employ ee in the perf

ormanc e of his work, he being an indepe ndent contra ctor if the w ill of the employ er is re prese nted only by the re sult, but an ag ent wher e the e mploy er’ s will is represe nted by the means a s well as the r esult.” Boyd , 3 63 S.W. 2d19 3, 19 7. A p e rs one mpl oy e d to pe rf orm c e rt a in work is not nece ssarily

a servant bec ause the contra ct provides that the w ork is subj ec t t o the app ro val of

thee mpl oy e r. “ Suc h a

pr ov isi onis n ot an a ssu mptionby thee mpl oy e r o f the ri g ht t o control . .

. the details or m ethods of doi ng the work, but is only that the employ er may

see that the contra ct is car

ried out ac cording to the plans.” Odom , 299 S.W . at 1046 (quoting 14 R.C.L . 68).-10-

I n Ra sk in , th e c ou rt

pr e se nte d the iss ue be fo re it as fo llo ws : “I f Ra skin is me re ly a n a g e nt, the City is operating the g olf coursethroug h Raskin’s ag ency ; if Raskin is an independent c ontrac tor, it is operating the g olf courseas an inde pendent e ntity , and the operation is notthe City ’s.” Raskin, at *2. Having examined not onlythe Ag ree ment but also the conduc t of the university and Sodexho, we a re una ble to concludethat the university was ope rating the food service opera t i o ns, to the c on tr ary , So de xho wa s. Ou r c on c lus ionis b a se d o n th e fa c t th a t th e e vid e nc e do e s n ot p re po nd e rate ag ainst the chancellor’ s finding s of fact s et forth in the first memorandum opinion and the f act that we r espec t ful ly

disag reewith the chanc ellor’s leg al conc lusion as stated in the second and final me mor a n d u m o p i n i o n
. W e h a v e r e a c h e d th e s a m e c o n c l u s i o n a s d i d th e c h a n c e l l o r i n the fi rs t memorandum opinion, that Sodex ho failed to c arry i t s b u rd en of proof to establish that it was the ag ent of the unive rsity . Specifica lly , we ha ve conc luded that t he Agr eeme nt and the c ontrol exerted by the university

was re sults oriented an d did not constitut e suff icient control ove r the means and methods of Sodexho’s food service operat ions to render Sodex ho an ag ent of the unive rsity for pu rp os e s o f the e xemp tio n. Th us , Sod e xho is no t e nti tle d to theta x exempt s tatus of theun ive rs ity and is liable for

the contra ctor’s use tax pursuant to Te nn. Code Ann. § 67-6- 209(b) a s assessed by the Commiss ioner.
This matter is remanded to the trial court for further proce eding s consistent with this opi nion. Costs are asse ssed ag ainst Sodex ho Manag ement, Inc.

___________________________________ FRANK G. CLEMENT, JR ., J UDGE