ATLANTA, April 10, 2012 /PRNewswire/ -- In Kelly's Food Concepts of Alabama, LLP ("Kelly's"), the Alabama Department of Revenue ("Department") rejected a sale-for-resale exemption claimed by restaurants on purchases of plastic utensils, paper napkins, and other items provided to customers.
This decision clarifies the Department's interpretation of a 2011 decision by the Alabama Court of Civil Appeals ("Court") in Alabama Department of Revenue v. Logan's Roadhouse, Inc. ("Logan's"). In Logan's, the Court held that peanuts purchased by the restaurant and provided to customers without a separate charge were purchased for resale and not subject to tax. The Court reasoned that the cost of the peanuts was included and recovered in customer's payments for other menu items, upon which sales tax is collected. The Court emphasized that Logan's Roadhouse provided evidence that the taxpayer allocated nine cents per meal to the cost of the peanuts.
In this decision, the Department addressed a similar fact pattern: whether Kelly's, a restaurant supply company, should have collected sales tax on paper napkins, plastic utensils, salt and pepper packets, straws, moist towelettes, and other items sold to restaurants. Kelly's argued that, like the taxpayer in Logan's, its customer-restaurants were reselling the paper napkins, etc. along with meals.
The Department, however, did not agree and explained a critical factor in the Logan's decision was that the restaurant provided proof that the cost of the peanuts was factored into the menu prices. Based on its understanding of Logan's, the Department rejected the taxpayer's argument on the basis that the taxpayer did not prove that the price of the napkins, utensils, etc. was factored into its customers' menu prices. The Department held that without specific evidence that the costs were factored into retail menu prices, the sale-for-resale exemption did not apply.