Opinion ID: 2032122
Heading Depth: 1
Heading Rank: 2

Heading: Elias Brothers

Text: In the instant case, the parties stipulated that [t]he food processing activities include a bakery, meat department, sandwich department, ice cream plant, seafood processing department, and a department that produces soup, salad dressing, and pie fillings. Rather than viewing the Commissary as a single entity, as the majority and the Department of Treasury have done, I think it should have been broken down into departments, with each department analyzed in accord with the cases discussed above.
Additionally, I would reject the majority's rationale that a taxpayer can escape otherwise applicable use taxes simply because it performs the taxable activity at another site and creates a sufficient paper trail to document transfer of the food to the site of the sale to the consumer. This argument was rejected in In re Marriott Family Restaurants v. New York Tax Appeals Tribunal, 174 A.D.2d 805, 570 N.Y.S.2d 741 (1991). There, the taxpayer manufactured a variety of food products for restaurants. It shipped seventy-six percent of its products to its own restaurants and twenty-four percent to other restaurants operated by licensees. The New York taxing authority allowed a manufacturing exemption from use tax for the twenty-four percent, but disallowed it for the seventy-six percent. The taxpayer argued that all of the activity should be exempt because the food [wa]s processed in a manufacturing facility that [wa]s entirely separate and distinct from the restaurant premises where the food [wa]s ultimately sold. Id. at 807, 570 N.Y.S.2d 741. The court affirmed, explaining: Notwithstanding petitioner's argument to the contrary, we find nothing irrational in respondent's interpretation insofar as it results in similar treatment for machinery and equipment regardless of whether it is used in processing food on the restaurant premises or at a separate facility. Whether the food is processed at a separate facility belonging to petitioner and shipped to petitioner's restaurants for final preparation or the food processing and preparation occurs entirely within the restaurant, the taxable event is the sale in the restaurant of a combination of food and service, which respondent could rationally view as a hybrid transaction rather than the sale of tangible personal property .... [ Id. at 807-808, 570 N.Y.S.2d 741 (emphasis added).] In contrast, the majority here would arguably allow a restaurant to move its kitchen across the street, or even next door, to a physically distinct location, and, as long as it creates a sufficient paper trail of sales to itself, it will escape otherwise applicable use taxes because its kitchen is a distinct, identifiable, and clearly severable activity. Weaver op at 14. This is not what the Legislature intended by industrial processing. The industrial processing exemption expressly provides:  [s]ales to a person performing a service who does not act as an industrial processor while performing the service may not be excluded under this subdivision .... M.C.L. § 205.94(g); M.S.A. § 7.555(4)(g) (emphasis added). The restaurant service of providing food preparation does not become industrial processing just because it is done in a different location or with a bigger kitchen utensil. It becomes industrial processing when it chang[es] the form, composition, or character of the starting product into a new product. Id.
In conclusion, I concur with the result reached by the majority, but dissent from its analysis for the reasons stated. MALLETT, J., concurs.