Title: AAA Laundry & Linen Supply Co. v. Dir. of Revenue
Citation: N/A
Docket Number: SC93331
State: Missouri
Issuer: Missouri Supreme Court
Date: March 11, 2014

SUPREME COURT OF MISSOURI 
en banc 
 
AAA LAUNDRY & LINEN SUPPLY CO., 
) 
 
 
 
 
 
 
 
) 
 
Respondent, 
) 
 
 
 
 
 
 
 
) 
v. 
) 
No. SC93331 
) 
DIRECTOR OF REVENUE,  
 
 
) 
) 
                                             
 
Appellant. 
) 
 
 
 
 
 
PETITION FOR REVIEW OF A DECISION OF THE  
ADMINISTRATIVE HEARING COMIMSSION 
The Honorable Sreenivasa Rao Dandamudi, Commissioner 
 
Opinion issued March 11, 2014 
In Unitog Rental Services, Inc. v. Director of Revenue, 779 S.W.3d 568 (Mo. banc 
1989), the Court plumbed the sudsy depths of various sales and use tax exemptions and 
found no application to commercial laundry operations.  A quarter century later, 
AAA Laundry brings substantially similar claims based on substantially similar facts.  
Because AAA Laundry fails to distinguish or discredit Unitog, however, its claims must 
meet the same end.1 
 
1   These claims bring to mind the phrase “Wash, rinse, and repeat,” which has become a 
“metaphor for following instructions or procedures slavishly without critical thought.”  
Wikipedia (http://en.wikipedia.org/wiki/Wash,_rinse,_repeat) (retrieved March 10, 2014). 
I.  Background 
AAA Laundry periodically delivers clean uniforms and other items to its 
customers and picks up soiled ones, which it launders to prepare them for future use.  
AAA Laundry owns the uniforms, and its customers pay only a “rental” fee for their  
services.  AAA Laundry does not pay sales or use taxes on the uniforms it purchases, but 
it does collect sales tax on these “rentals.”   
In the course of laundering its rotating stock of uniforms, AAA Laundry consumes 
large quantities of various cleaning supplies (collectively referred to as “soap”).  When it 
purchases soap from out-of-state vendors, AAA Laundry pays neither sales nor use taxes 
on those purchases.  Similarly, AAA Laundry’s operations generate a significant amount 
of wastewater that must be treated before it can be released into the city sewer system.  In 
treating this wastewater, AAA Laundry consumes large quantities of chemicals.  To the 
extent it purchases these water treatment chemicals from out-of-state vendors, AAA 
Laundry also pays no sales or use taxes.   
Following an audit, the Department of Revenue calculated that AAA Laundry 
owes approximately $40,000 in use taxes (plus interest and additions) for the soap and 
water treatment chemicals purchased from out-of-state vendors.  AAA Laundry sought 
review of these assessments before the administrative hearing commission (“AHC”), 
which concluded that:  (1) AAA Laundry’s purchases of soap are exempt from use taxes 
under section 144.054.22 relating to chemicals used in “processing” a product, and (2) its 
purchases of water treatment chemicals are exempt under section 144.030.2(15) relating 
to “machinery” and “equipment” used solely for water pollution abatement.  The state 
sought judicial review of the AHC’s decision, and this Court has exclusive jurisdiction.  
See Mo. Const. art. V, § 3.  The decision of the AHC is reversed as to both exemptions. 
II.  Analysis 
In reviewing a decision of the AHC, section 621.193 provides that “the AHC is to 
be upheld when authorized by law and supported by competent and substantial evidence 
upon the record as a whole unless it is clearly contrary to the reasonable expectations of 
the General Assembly.”  Street v. Dir. of Revenue, 361 S.W.3d 355, 357 (Mo. banc 
2012).  As this statute recognizes, however, no deference to the AHC’s decision is 
appropriate unless the decision is “authorized by law,” and this Court reviews de novo all 
questions of statutory interpretation raised in an AHC decision.  Id.    
 
When construing sales and use tax exemptions, the Court strives to “give effect to 
the General Assembly’s intent, using the plain and ordinary meaning of the words.”  
Branson Properties USA, L.P. v. Dir. of Revenue, 110 S.W.3d 824, 825-26 (Mo. banc 
2003).  An exemption is “strictly construed against the taxpayer,” however, and “is 
allowed only upon clear and unequivocal proof, and doubts are resolved against the party 
claiming it.”  Id. at 826.  Moreover, the Court does not write on a blank slate in each and 
                                             
 
2   Unless otherwise noted, all statutory citations are to RSMo Supp. 2007.  The exemption 
relating to water pollution abatement referenced here as section 144.030.2(15) since has been 
renumbered but otherwise is unchanged.  See § 144.030.2(16), RSMo Supp. 2013. 
 
3
every tax case, and stare decisis plays as great a role in such cases as it does in every 
other area of the Court’s jurisprudence.3 
 
A.  The Unitog Decision 
 
In Unitog, this Court reviewed the operations of a commercial laundry engaged in 
substantially the same uniform delivery, pick-up, and laundry services that AAA Laundry 
provides.  There, this Court rejected the taxpayer’s argument that its laundry equipment 
was exempt from sales or use taxes because laundering qualifies as “manufacturing.”  
After thoroughly cataloging the Court’s prior decisions, Unitog holds: 
The premise underlying appellant's argument is that construction of the 
term “manufacturing” as used in the exemption statute involves a 
comparison in the condition, quality, value and usefulness of the product 
immediately before and immediately after processing.  Although some of 
the language taken from the cases cited above upon which appellant relies 
may, at first glance, seem to lend support to this premise, more careful 
analysis of our decisions demonstrates the fallacy of appellant's theory.  
In each of the cited cases, the processing found to constitute 
manufacturing produced a new and different product, dissimilar to any 
previous condition of the processed article. 
 
Unitog, 779 S.W.2d at 570 (bold emphasis added).  Accordingly, Unitog holds that a 
commercial laundry is not engaged in “manufacturing” because laundering does not 
“produce[] a new and different product, dissimilar to any previous condition of the 
processed article.”  Id.   
                                             
 
3  In Union Elec. Co. v. Dir. of Revenue, ___ S.W.3d ___ (Mo. banc 2014), decided concurrent 
hereto, the Court similarly invoked precedent decided on substantially similar facts to reject the 
taxpayer’s claims.  There, as here, the taxpayer changed exemption statutes (i.e., from 
section 144.030.2 to section 144.054.2) but failed to distinguish or discredit the precedent that 
plainly doomed its claims. 
 
4
 
Like AAA Laundry in this case, the taxpayer in Unitog argued that laundering 
soiled uniforms “takes something practically unsuitable for any common use and changes 
it so as to adapt it to a common use.”  Id.  Unitog rejects this argument, however, and 
holds that laundering is merely the “repair and restoration of the original article.”  Id.  
Based on the Court’s prior decision that bonding new treads to used and useless tires was 
not manufacturing, Unitog holds that laundering uniforms is not manufacturing because it 
fails to produce “a new and different article … having a distinctive name, character or 
use.”  Id.  (quoting State ex rel. AMF, Inc. v. Spradling, 518 S.W.2d 58, 26 (Mo. 1974).  
Unitog concludes this analysis by holding: “The common thread running throughout all 
of the cases in which we have defined “manufacturing” is the production of an article 
with a new use different from its original use.”  Id. 
 
Now, a quarter century later, AAA Laundry contends that it should benefit from 
the type of sales and use tax exemptions that were denied the taxpayer in Unitog, even 
though AAA Laundry concedes that it is engaged in substantially the same activity that 
the Court considered and found wanting in Unitog.  AAA Laundry makes several 
attempts to distance itself from this remarkably similar precedent but these efforts, both 
individually and collectively, fail to justify the Court reaching a conclusion in this case so 
plainly at odds with Unitog.  Indeed, AAA Laundry’s efforts to distinguish Unitog are 
similar to what Lord Bowen referred to as watching “a blind man in a dark room looking 
for a black hat which isn’t there.”  See a Circuit Tramp, ‘Pie Powder’: being dust from 
the Law Courts collected and recollected on the Western Circuit (John Murray 1st ed. 
 
5
1911), at p.25.  Accordingly, the Court holds that AAA Laundry is not entitled to the use 
tax exemptions it seeks. 
 
B.  Section 144.054.2 
 
 
AAA Laundry first tries to differentiate itself from Unitog by claiming an 
exemption under a different statute.  The taxpayer in Unitog relied on an exemption in 
section 144.030.2 for “machinery and equipment ... used directly in manufacturing, 
mining or fabricating a product[.]”  Unitog, 779 S.W.2d at 569 (emphasis in original).  
Here, AAA Laundry invokes an exemption for “chemicals … used or consumed in the 
manufacturing, processing, compounding, mining, or producing of any product.”  
§ 144.054.2 (“emphasis added”).  In other words, AAA Laundry’s principal stratagem for 
avoiding Unitog is to: (a) claim that “laundering is processing,” and (b) argue that Unitog 
is irrelevant because it holds only that “laundering is not manufacturing.” 
 
First, the terms “processing” and “manufacturing” were used interchangeably 
throughout Unitog both by the taxpayer and the Court.  See, e.g., Unitog, 779 S.W.2d at 
570 (“Appellant contends its cleaning and decontamination process fits the definitions 
and pronouncements” concerning the meaning of “manufacturing”).  This was no 
accident.  The use of these terms in Unitog reflects the Court’s oft-repeated conclusion 
that “processing” and “manufacturing” have concentric, if not identical, meanings.  
Indeed, shortly after Unitog, the Court expressly stated that “there is little to no 
difference between the terms ‘processing’ and ‘manufacturing,’ as a practical matter.”  
Hudson Foods v. Director of Revenue, 924 S.W.2d 277, 278 n. 1 (Mo. banc 1996) 
(emphasis added).  See also Mid-America Dairymen, Inc. v. Director of Revenue, 924 
 
6
S.W.2d 280, 283 (Mo. banc 1996) (“the meaning of the term ‘processing’ is ordinarily 
included within the meaning of the more general and inclusive term ‘manufacturing’”) 
(emphasis added). 
 
In Aquila Foreign Qualifications Corporation  v. Director of Revenue, 362 
S.W.3d 1 (Mo. banc 2012), the Court analyzed the term “processing” in 
section 144.054.2 – i.e., the same word and statute on which AAA Laundry now rests its 
claim – and held that the “industrial connotations of those terms … indicate that the 
legislature did not intend ‘processing’ to include food preparation for retail 
consumption.”  Id. at 5.  Just as the Court now relies on the Unitog analysis of 
“manufacturing” in section 144.030.2 to reject AAA Laundry’s attempt to extend 
“processing” to cover laundering, Aquila relies on a different “manufacturing” case under 
section 144.030.2 to reject a taxpayer’s argument that “processing” should be extended to 
cover other activities that plainly were not “manufacturing.”  Aquila, 362 S.W.3d at 4 
(finding that reliance on Brinker Mo., Inc. v. Dir. of Revenue, 319 S.W.3d 433, 435 (Mo. 
banc 2010) was appropriate because it “interpreted a related exemption under similar 
facts”).4  Accordingly, the Court rejects AAA Laundry’s effort to distinguish Unitog by 
                                             
 
4   In Aquila, the taxpayer also argued – as AAA Laundry does here – that the meaning of 
“manufacturing” in section 144.030.2 should not be relevant to determining the meaning of 
“processing” in section 144.054.2 because: (1) section 144.054.1 provides its own definition of 
the term “processing,” and (2) the exemption under section 144.030.2 at issue in Brinker (and the 
separate exemption at issue in Unitog) exempted only “manufacturing” and not “processing.”  
These arguments failed in Aquila, and so they must fail here.  First, this statutory definition of 
“processing” is entirely consistent with the definition of “manufacturing” in Unitog because it 
refers to “acts performed upon materials to transform or reduce them to a different state or 
thing,” § 144.054.1(1) (emphasis added).  Second, this definition was enacted after – and, 
therefore, with knowledge of – this Court’s settled construction that “processing” is practically 
the same as, and wholly subsumed within, “manufacturing.”  Aquila, 362 S.W.3d at 5 n.10 
 
7
claiming that its holding regarding “manufacturing” should not control the reach of the 
term “processing” in this case.  See also, Union Elec. Co., ___ S.W.3d at ___ (Mo. banc 
2014) (decided concurrent hereto) (following Aquila under substantially similar facts and 
relying on both Aquila’s definition of “processing” and its analysis of Brinker). 
 
Tacitly conceding that “processing” and “manufacturing” are one and the same, 
AAA Laundry’s second attempt to distinguish Unitog is its claim that, under Jackson 
Excavating Co. v. Admin. Hearing Comm’n, 646 S.W.2d 48 (Mo. 1983) (taxpayer 
converts “raw” water into potable water), laundering can qualify as “manufacturing” even 
though it yields no “new and different product.”  But Unitog addresses and rejects 
precisely the same argument: “We concluded in Jackson Excavating that the production 
of “water fit for use” caused substantial transformation in quality and adaptability and 
creates an end product quite different from the original.”  Unitog, 779 S.W.2d at 570 
(citing Jackson Excavating, 646 S.W.2d at 51).  Because AAA Laundry fails to justify 
why the Court should be persuaded here by an argument that failed under substantially 
similar facts in Unitog, this second attempt to distinguish Unitog on legal grounds also 
fails.  
 
AAA Laundry argues vehemently that its laundering is a specialized service, that 
it constitutes sanitization and not just cleaning, and that the market value of its uniforms 
is virtually zero before it launders them.  But these arguments miss the point.  The 
                                                                                                                                                 
 
(citing Cook Tractor Co., Inc. v. Dir. of Revenue, 187 S.W.3d 870, 873 (Mo. banc 2006) (“When 
the legislature enacts a statute referring to terms that have had other judicial or legislative 
meaning attached to them, the legislature is presumed to have acted with knowledge of that 
judicial or legislative action”)). 
 
8
question before the Court is not whether AAA Laundering’s activities constitute 
“processing” as a matter of first impression.  The question is whether any of these facts 
provide a sufficient basis for the Court to depart from the reasoning and conclusion in 
Unitog.  As discussed above, AAA Laundry’s efforts to distinguish Unitog on legal 
grounds (i.e., by relying on “processing” instead of “manufacturing,” and by invoking an 
exemption in section 144.054.2 instead of section 144.030.2) fall far short of justifying a 
tax exemption for commercial laundering in this case where Unitog found none.  
Similarly, no matter how significant the facts cited by AAA Laundry may be, they also 
fail to provide any meaningful basis for distinguishing Unitog because the same facts 
were argued with the same vehemence in that remarkably similar precedent.  See Unitog, 
779 S.W.2d at 569 (taxpayer insisted uniforms were “thoroughly infiltrated with 
industrial soil and, in some instances, toxic contamination” such that “garments are 
utterly useless and of no value until subjected to the particularized processing required to 
remove whatever type of soil or contaminant may be present”).   
 
Accordingly, the Court holds that the AHC erred in concluding that the use tax 
exemption in section 144.054.2 applies to AAA Laundry’s out-of-state purchases of soap 
for use in its Missouri laundering operations.  Unitog declares that commercial 
laundering does not constitute “manufacturing,” and this holding applies equally to the 
nearly synonymous term “processing.”  Because AAA Laundry neither asks this Court to 
overrule Unitog nor presents a sufficiently compelling legal or factual basis to distinguish 
that case and justify the Court reaching a contrary conclusion here, the Court holds that 
 
9
Unitog compels the conclusion that AAA Laundry is not entitled to the use tax exemption 
in section 144.054.2. 
 
C. 
Section 144.030.2(15) 
 
AAA Laundry contends that its out-of-state purchases of wastewater treatment 
chemicals are exempt from use taxes because those chemicals are “machinery or 
“equipment” that is “purchased or leased and used solely for the purpose of preventing, 
abating or monitoring water pollution.”  §144.030.2(15).  AAA Laundry has purchased 
various machines and other pieces of equipment to treat the wastewater generated by its 
laundering operations, and the state does not contest that these purchases were exempt 
from sales and use taxes under this provision.  Instead, the dispute in this case involves 
AAA Laundry’s attempt to expand this exemption to cover its purchases of wastewater 
treatment chemicals.  It argues that these chemicals are essential components of its 
wastewater treatment machinery and equipment and, therefore, must either be 
“equipment” in their own right or treated as a constituent part of the wastewater treatment 
machinery. 
 
As above, the Court’s decision on this question already has been made.  In 
Walsworth Pub. Co., Inc. v. Dir. of Revenue, 935 S.W.2d 39, 40 (Mo. banc 1996), a 
yearbook publisher argued that its purchases of phototypesetting paper, one piece of 
which was consumed as an integral part of preparing each yearbook page for publishing, 
were exempt from sales taxes because the paper constituted “equipment” under one of the 
exemptions in section 144.030.2.  Consulting Webster’s Third New International 
Dictionary, the institutional dictionary of choice, Walsworth holds that “equipment” 
 
10
means “all the fixed assets other than land and buildings of a business enterprise.”  Id. 
at 40.   “Under this definition, equipment must have a degree of permanence to the 
business.  Items consumed in one processing are not ‘fixed’ in any sense.”  Id. 
(emphasis added). 
 
Here, AAA Laundry’s water treatment chemicals that are consumed during the 
treatment of its wastewater are not “equipment” for the same reason that the 
phototypesetting paper consumed in the publication process in Walsworth was not 
“equipment.”  Both are “[i]tems consumed in one processing;” therefore, neither have 
any “degree of permanence.”  Id.  Using this same logic, AAA Laundry’s water treatment 
chemicals also cannot meet the “fixed asset” definition of “machinery.”  The Court does 
not doubt that these chemicals are essential or that the wastewater treatment machines 
and equipment would not work without them.  But this does not transform these 
chemicals – which necessarily are consumed during the treatment process – into 
“equipment” or “machinery.”  Walsworth draws the line for “equipment” or “machinery” 
between fixed assets and consumables,5 and AAA Laundry provides no basis for 
abandoning such a clear and easily applied test here.  
                                             
 
5   Walsworth emphasizes that the exemption at issue there also applied to “materials and 
supplies solely required for the installation or construction of such machinery and 
equipment.”  Walsworth, 935 S.W.2d at 40 (emphasis added).  This narrow exemption for 
“materials and supplies” provides ample proof that such consumables could not also be included 
within the meaning of the terms “machinery” or “equipment.”  Id.  The exemption on which 
AAA Laundry relies, though not the same as the one at issue in Walsworth, includes the very 
same language.  See § 144.030.2(15) (“materials and supplies solely required for the installation, 
construction or reconstruction of [wastewater treatment] machinery [or] equipment”).  
Accordingly, this limited exemption for consumables in section 144.030.2 (15) proves here, just 
as in Walsworth, that consumables such as these chemicals cannot be included in the general 
terms “machinery” or “equipment.” 
 
11
 
12
                                             
 
Accordingly, the Court holds that the AHC erred in concluding that the use tax 
exemption in section 144.030.2(15) applies to AAA Laundry’s out-of-state purchases of 
wastewater treatment chemicals for use in its Missouri laundering operations.  Walsworth 
declares that “equipment” – and, by necessary extension, “machinery” – refers only to 
fixed assets or items that have some degree of permanence and, specifically, that neither 
term includes consumables.  Because AAA Laundry neither asks this Court to overrule 
Walsworth nor presents a sufficiently compelling legal or factual basis to distinguish that 
case and justify the Court reaching a contrary conclusion here, the Court holds that 
Walsworth compels the conclusion that AAA Laundry is not entitled to the use tax 
exemption in section 144.030.2(15).6 
III. 
Conclusion 
 
For the reasons stated above, the decision of the AHC is reversed and the matter 
remanded for the limited purpose of calculating the tax, interest and additions owed by 
AAA Laundry.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
___________________________ 
 
 
 
 
 
 
 
 
Paul C. Wilson, Judge 
All concur. 
 
 
6   AAA Laundry contends that, if the water treatment chemicals are not exempt under section 
144.030.2(15), they should be exempt under the same section 144.054.2 on which it relies on – 
unsuccessfully – to claim an exemption for its laundry soap.  Although the Court may affirm the 
AHC on an alternative basis, it will do so only on a basis that actually was argued there.  AAA 
Laundry fails to demonstrate that it made this argument to the AHC and, therefore, the Court will 
not consider it further.  The only other claim that was argued to, and decided by, the AHC was 
AAA Laundry’s claim that its out-of-state purchases of soap should be exempt from use taxes as 
the cost of “new items” under section 144.020.1(8).  The AHC rejected this claim, and 
AAA Laundry abandoned it when it failed to file a cross-petition for review and argue it in this 
Court.