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Jerman Fights Cookie Tax
by Ron Davis

Debate over a Texas sales tax that applies to food servers has swung in favor of a shopping center cookies vendor that is protesting the tax.

The debate over the tax erupted when the vendor claimed that the state is illegally forcing it to pay the assessment. The shopping center is Vista Ridge Mall in Lewisville, and the vendor is Jerman Cookie Co., which sells brownies as well as cookies in individual-sized quantities of five or less. Those products are not heated when sold, and Jerman does not provide eating utensils to customers.

Texas state officials have ruled that Jerman’s sales are not exempt from taxation. They points out that an exemption from the tax exists only under certain conditions. Those conditions include a requirement that a food server cannot provide customers with dining facilities. If it does, the server must pay the sales tax.

Otherwise, Jerman met the other standards to avoid taxation. Jerman’s offered, for example, individual-sized portions of bakery products sold in quantities of five or less and packaged for later consumption.

But tax officials argued that Jerman’s location at Vista Ridge Mall is in the food court. Thus, they added, Jerman’s customers have access to “eating facilities.” That is, the tax officials claimed, Jerman’s customers can sit and eat Jerman’s cookies and brownies seated in chairs at tables available in the shopping center’s food court.

Jerman responded to that claim by noting that its leased space occupies a corner portion of the indoor mall. One side of the space faces the main mall walkway, and the adjacent side faces “the direction” of the food court. From that location, the food court extends perpendicularly out from the main mall walkway.

Moreover, the lease agreement between Jerman and Vista Ridge Mall provides that Jerman’s leased premises must be used solely for preparing, storing, and selling bakery products “for off-premises consumption.” A general manager of the shopping center also explained that the center’s owners do not consider Jerman to be a tenant of the food court.

Finally, the general manager stated that Jerman’s store is listed in a Vista Ridge Mall brochure as a “specialty foods” tenant rather than a food-court tenant. He added that although he had seen Jerman customers eating bakery products in the food court, “virtually all customers eat those products while strolling and shopping” at the mall.

Based on such evidence and testimony, a Texas appellate court reversed a lower-court judgment requiring Jerman to pay the sales tax. Explained the appellate justices, “The tax exemption depends on whether Jerman provides eating facilities,” and, “a genuine issue remains as to the material fact of whether Jerman provides eating facilities at its Vista Ridge Mall store.” (Jerman Cookie Company v. Combs, 2009 WL 2195581 [Tex.App.-Austin])

Decision: August 2009
Published: August 2009



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