Sodexo America, LLC v. City of Golden

COLORADO COURT OF APPEALS 2017COA118

Court of Appeals No. 16CA1355
Jefferson County District Court No. 15CV31189
Honorable Christopher C. Zenisek, Judge

Sodexo America, LLC,

Plaintiff-Appellant,

v.

City of Golden, Colorado; and Jeff Hansen, in his official capacity as Finance
Director of the City of Golden, Colorado,

Defendants-Appellees.

JUDGMENT REVERSED AND CASE
REMANDED WITH DIRECTIONS

Division IV
Opinion by JUDGE J. JONES
Graham and Welling, JJ., concur

Announced September 7, 2017

Silverstein & Pomerantz LLP, Neil I. Pomerantz, Mark E. Medina, Michelle
Bush, Denver, Colorado, for Plaintiff-Appellant

Williamson and Hayashi, LLC, David S. Williamson, Mathew M. Munch,
Boulder, Colorado, for Defendants-Appellees

Cynthia H. Coffman, Attorney General, Stephanie Scoville, Assistant Attorney
General, Jeremy Hueth, Special Assistant Attorney General, Denver, Colorado,
for Amici Curiae Colorado Higher Education Institutions
¶1 Sodexo America, LLC (Sodexo) provides food services and food

to the Colorado School of Mines (Mines) pursuant to a contract with

Mines. Mines, in turn, contracts with its students to provide them

food (the food obtained, prepared, and served by Sodexo) through

different types of meal plans. The City of Golden (the City) taxes

Sodexo for students’ use of the meal plans. This, Sodexo

maintains, violates the Colorado Constitution and the Golden

Municipal Code (2015) (Code or GMC).1

¶2 The district court disagreed with Sodexo and granted

summary judgment for the City on Sodexo’s challenges to the City’s

assessment and denial of refunds, leading to this appeal. Departing

from the decision of another division of this court in City of Golden

v. Aramark Educational Services, LLC, 2013 COA 45, involving a

similar arrangement, we hold that, under the relevant contract and

pursuant to the plain language of the Code, no sales occur between

Sodexo and Mines’ students with meal plans. Instead, Sodexo sells

meal plan meals to Mines at wholesale. And since the Code

expressly exempts wholesale sales from taxation, the City’s

assessment is invalid. We therefore reverse the district court’s

1 We apply the 2015 version of the Code throughout.

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summary judgment and remand the case for entry of judgment in

Sodexo’s favor.

I. Background

¶3 The contract between Sodexo and Mines requires Sodexo to

“provide food services for [Mines] students, faculty, staff, employees

and invited guests.” It defines food services as “[t]he preparation,

service and sale of food, beverages, and select goods, merchandise

and other items to be agreed upon by [Mines] and Sodexo . . . ,

including catering, concessions, retail and meal plans.” But the

contract also says that the food and other tangible items Sodexo

provides are deemed Mines’ property alone; Sodexo is essentially

Mines’ go-between for that food.

¶4 Sodexo provides food services by operating and staffing all of

the dining facilities on Mines’ campus, both traditional residential

dining facilities and “branded” dining facilities, including the Slate

Cafe, Diggers’ Den Food Court, Subway, and Einstein Bros. Bagels.

A student buying a meal plan from Mines (pursuant to a contract

with Mines, as explained below) can redeem her meal plan meals at

any of these facilities. The facilities aren’t advertised to the public

and are used primarily by Mines’ students and staff. On rare

2
occasion, members of the public buy food from the facilities using

cash or a credit card.

¶5 Sodexo’s contract with Mines sets the prices Mines pays

Sodexo for each meal that a student redeems pursuant to a meal

plan the student has purchased from Mines. It also stipulates that

any increase or decrease in these prices requires Mines’ prior

approval.

¶6 Mines requires every student living in a residence hall to select

a meal plan from among several options; students living off-campus

may purchase meal plans. Each meal plan includes a certain

number of weekly meals and a sum of “Munch Money,” a declining

balance of points/dollars that can be used at any retail food

location on campus. At the end of each semester, students lose any

unused balance of meals and Munch Money. These terms are

memorialized in contracts that Mines enters into with its students;

Sodexo doesn’t enter into any food purchase contracts with Mines’

students.

¶7 The students’ contracts describe the available meal plan

options and how much they cost. Mines alone determines prices

and terms, without Sodexo’s approval, and charges the cost of the

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meal plans to the students’ Mines accounts. Only Mines can

charge and collect amounts owed for meal plans.

¶8 Students redeem meal plan meals and Munch Money using

“BlasterCards” provided by Mines. Mines electronically syncs each

student’s BlasterCard with the meal plan the student has

purchased from Mines. So each time a student “swipes” her

BlasterCard on a card reader at a dining facility, Mines’ software

automatically deducts a meal (or Munch Money) from the student’s

account.

¶9 Periodically, Mines reports the number of meals used under

each of its meal plans to Sodexo.2 Sodexo then invoices Mines

based on the report. The per meal prices Mines pays Sodexo per

their contract are significantly less than the prices Mines charges

students under the meal plans.

¶ 10 The Code says the City may levy a three percent sales tax on

the “purchase price” of “all sales of tangible personal property and

services,” including food, unless expressly exempted. GMC

§ 3.03.010. Sodexo collects and remits sales tax on campus food

2 The contract contemplates monthly reports, but it appears from
the record that Mines may provide weekly reports.

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purchases made with cash, check, or credit card.3 But the City has

also assessed Sodexo sales tax on transactions whereby students

swipe their BlasterCards in exchange for meal plan meals in the

dining facilities. (Paradoxically, however, the City assesses the tax

based on the prices Mines pays Sodexo, not on the prices students

pay Mines.4) As noted, Sodexo’s challenges to this assessment have

thus far failed.

II. Discussion

¶ 11 Sodexo contends that the City can’t tax it for meals purchased

by Mines’ students under the students’ contracts with Mines

because (1) doing so interferes with Mines’ constitutional authority

to exercise “exclusive control and direction” of its funds and

appropriations; (2) doing so unconstitutionally taxes Mines’

students’ acquisition of education furnished by the State; (3)

Sodexo’s sales of food to Mines under their contract are excluded

3 Sodexo concedes that these sales are subject to the sales tax, and
therefore they are not at issue.

4 According to the Code, the purchase price is “the price to the
consumer.” GMC § 3.02.10. The sales tax rate is “three percent of
the purchase price.” Id. at § 3.03.10(a). The City claims that the
student is the consumer, but the City doesn’t assess Sodexo based
on the price to that consumer. Rather, it assesses three percent on
the lower price Mines pays Sodexo.

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from taxation under the Code as direct sales to Mines in its

governmental capacity only; and (4) Sodexo does not sell food to

students at retail, but instead sells food to Mines at wholesale, and

the Code expressly exempts wholesale sales from taxation. Because

we conclude that Sodexo doesn’t sell food to students at retail, and

that the Code’s wholesale exemption applies to the sales Sodexo

makes to Mines, we don’t address Sodexo’s first three contentions.5

A. Standard of Review and Applicable Law

¶ 12 We review an order granting summary judgment de novo.

Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 290

(Colo. App. 2009). We similarly review the interpretation of a

municipal ordinance. See Friends of Denver Parks, Inc. v. City &

Cty. of Denver, 2013 COA 177, ¶ 45; Leggett & Platt, Inc. v. Ostrom,

251 P.3d 1135, 1140 (Colo. App. 2010) (construing tax ordinances,

including a tax exemption provision).

5 Sodexo urges us to decide this case on constitutional grounds, as
do the other public institutions of higher education that have filed a
brief as amici curiae. But we avoid constitutional analysis if we can
resolve a case on statutory grounds. City of Florence v. Pepper, 145
P.3d 654, 660 (Colo. 2006); see also Taxpayers for Pub. Educ. v.
Douglas Cty. Sch. Dist., 2015 CO 50, ¶ 11, cert. granted, judgment
vacated, and case remanded, 582 U.S. ___ (2017).

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¶ 13 We construe such ordinances the same way we construe

statutes, and so our ultimate goal is to determine and give effect to

the municipality’s intent. Leggett & Platt, 251 P.3d at 1141; Waste

Mgmt. of Colo., Inc. v. City of Commerce City, 250 P.3d 722, 725

(Colo. App. 2010). To do this, we look first at the ordinance’s plain

language. But we don’t look at the language in isolation: we must

consider the language in context, looking to related provisions and

construing them in a way that gives effect to all, in a harmonious

way, if possible. Leggett & Platt, 251 P.3d at 1141; Waste Mgmt.,

250 P.3d at 725.

¶ 14 If, after doing all this, we conclude that the ordinance’s

meaning is clear, we won’t apply other rules of statutory

interpretation. But if we conclude to the contrary — that is, that

the relevant language is ambiguous — those other rules come into

play. Leggett & Platt, 251 P.3d at 1141; Waste Mgmt., 250 P.3d at

725.

¶ 15 A couple of special rules guide our interpretation of tax

provisions.

¶ 16 First, as a general matter, we construe provisions purporting

to impose a tax narrowly in the taxpayer’s favor. Associated Dry

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Goods Corp. v. City of Arvada, 197 Colo. 491, 496, 593 P.2d 1375,

1378 (1979) (“[T]axing powers and taxing acts will not be extended

beyond the clear import of the language used . . . .”); Coors Brewing

Co. v. City of Golden, 2013 COA 92, ¶ 18; Noble Energy, Inc. v. Colo.

Dep’t of Revenue, 232 P.3d 293, 296 (Colo. App. 2010). This first

rule requires us to resolve all doubts regarding imposition of a tax

against the taxing authority. Associated Dry Goods, 197 Colo. at

496, 593 P.2d at 1378; Noble Energy, 232 P.3d at 296.

¶ 17 Second, we construe tax exemptions narrowly in the taxing

authority’s favor. Catholic Health Initiatives Colo. v. City of Pueblo,

207 P.3d 812, 817-18 (Colo. 2009); Coors, ¶ 18. This second rule

requires us to resolve all reasonable doubts about whether an

exemption applies against the taxpayer. Catholic Health Initiatives,

207 P.3d at 818; Coors, ¶ 18; Noble Energy, 232 P.3d at 296. And

the taxpayer has the burden of clearly establishing that the

exemption applies. Catholic Health Initiatives, 207 P.3d at 817.

B. Analysis

¶ 18 Section 3.03.010(a) of the Code provides that a three percent

sales tax “is levied . . . upon all sales of tangible personal property

and services specified in subsection 3.03.030(a).” As relevant for

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our purposes, “sales of food, prepared food, or food for immediate

consumption” are taxable sales. GMC § 3.03.030(a)(4).

¶ 19 Under the Code, “sale means the acquisition for any

consideration by any person of tangible personal property or taxable

services that are purchased.” GMC § 3.02.010. And the Code

defines “gross sales” as “the total amount received in money, credit,

property or other consideration valued in money for all sales, leases,

or rentals of tangible personal property or services.” GMC

§ 3.02.010 (emphasis added). The plain language of the Code

therefore limits taxable sales to exchanges where the one providing

the tangible item receives consideration for the exchange.

¶ 20 In concluding that Sodexo makes meal plan sales directly to

students, the district court erroneously determined that a sale

occurs when a student swipes her BlasterCard. No sale by Sodexo

occurs in that circumstance because, under the Code, a sale

requires the receipt of consideration for the exchange, see GMC

§ 3.02.010, and a student doesn’t give consideration to Sodexo (or,

arguably, to anyone else) when she swipes a BlasterCard to obtain a

meal under the meal plan or with Munch Money.

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¶ 21 The relevant contracts and undisputed facts show that

consideration is exchanged for food on two occasions: once when a

student pays Mines for a meal plan or Munch Money, and again

when Mines pays Sodexo periodically based on the number and

types of meals provided to students pursuant to the students’

agreements with Mines. As noted, the meal plans and Munch

Money are “use it or lose it” propositions. The student can’t get a

refund from Mines if she uses less than what she has already paid

for. So the student isn’t truly paying anything when swiping a

BlasterCard; she is merely reducing the number of meals she can

obtain in the future under her meal plan. Certainly she is paying

nothing to Sodexo. Simply put, when a student uses a BlasterCard,

she and Sodexo aren’t engaging in a buyer-seller transaction.

¶ 22 As no sale by Sodexo occurs under the Code (as construed

narrowly in favor of the taxpayer) when a student swipes a

BlasterCard, Sodexo can’t be responsible for sales tax for any such

transaction. See GMC § 3.03.010.

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¶ 23 To be sure, sales occur under the Code when Mines pays

Sodexo for meals.6 But what kind of sales are they? If they are

wholesale sales, as Sodexo contends, they are exempt from taxation

under subsection 3.03.040(a)(13) of the Code, which says that “[t]he

sales tax . . . shall not apply to . . . [a]ll wholesale sales.” We agree

with Sodexo that this exemption clearly applies to its sales to

Mines.

¶ 24 We begin, as we must, with the Code’s definition of wholesale

sales. Such sales are “sales to licensed retailers, jobbers, dealers or

wholesalers for resale.” GMC § 3.02.010.7 Sodexo sells meals to

Mines, a licensed retailer. And Mines resells them to students at

prices significantly higher than Sodexo charges it under its contract

6Given that the City has thus far only sought to tax the
BlasterCard swipe transactions, we arguably don’t need to
determine whether the parties’ contractual relationships give rise to
any other taxable sales. But we do so out of an abundance of
caution, and because the City’s assessment is based on the prices
Mines pays Sodexo.

7 The Code also distinguishes wholesale sales from “retail sales”
(defined as “all sales except wholesale sales”) in the way it defines
“retailer”: “any person selling . . . tangible personal property . . . at
retail.” GMC § 3.02.010. As discussed, Sodexo doesn’t sell to
students at all, and it doesn’t sell to Mines at retail. Mines, on the
other hand, sells to students at retail.

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with Sodexo. So Sodexo’s sales to Mines meet the Code’s definition

of wholesale sales. See also P.H. Collin, Dictionary of Business 474

(3d ed. 2001) (a wholesaler “buys goods in bulk at a wholesale

discount”).

¶ 25 The City’s reliance on Sodexo’s delivery of the meals to

students misses the mark. Though Sodexo also provides the service

of delivering the meals to the students, it does so in Mines’ stead.

The meals, under the express terms of the contract, are Mines’

property. And that is no less so just because Mines itself doesn’t

physically receive the meals.8

¶ 26 Even less appealing is the City’s argument that because Mines

is not the “ultimate consumer” of the meals, Sodexo can’t be a

wholesaler. By definition, sales to end users are not wholesale

sales. See GMC § 3.02.010 (“Sales by wholesalers to consumers are

not wholesale sales.”); see also Black’s Law Dictionary 1832 (10th

ed. 2014) (defining “wholesale” as “[t]he sale of goods or

commodities usu[ally] to a retailer for resale, and not to the

ultimate consumer”); Encyclopedia of Small Business 1323 (Virgil L.

8The City fails to cite any authority for the proposition that a sale
can’t qualify as wholesale unless the purchaser takes physical
possession of the goods.

12
Burton III ed., 2011) (defining “wholesaling” as “the selling of

merchandise to anyone . . . other that the end consumer of that

merchandise”). So the fact Mines isn’t the ultimate consumer of the

meals it buys from Sodexo actually supports Sodexo’s position.9

¶ 27 In sum, we conclude that Sodexo’s sales to Mines are

wholesale sales under the plain language of the Code’s exemption.

Of this we have no reasonable doubt.

¶ 28 Though we rely on the plain language of the exemption as

applied to the undisputed facts, we might be remiss if we failed to

examine the issue using a test formulated by the supreme court to

determine whether a sale is a wholesale sale.

¶ 29 In A.B. Hirschfeld Press, Inc. v. City & County of Denver, 806

P.2d 917 (Colo. 1991), the court, interpreting tax provisions of the

Denver Municipal Code that are substantially similar to those at

issue in this case, held that a wholesale purchase occurs if “the

primary purpose of the transaction is the acquisition of the item for

resale in an unaltered condition and basically unused by the

9That the contract between Sodexo and Mines doesn’t use the word
“wholesale” is, contrary to the City’s argument, immaterial. The
substance of the transaction is what matters, and nothing in the
Code requires the taxpayer to formally label its transactions
wholesale.

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purchaser.” Id. at 921; see also Coors, ¶ 21 (applying this test to

the GMC’s wholesale exemption). Mines doesn’t alter or use the

meals provided to students, and the economic reality of the parties’

relationships is that Mines acquires the meals to resell to its

students at a higher price. It follows that Sodexo’s sales to Mines

are wholesale sales under the primary purpose test.10

¶ 30 Decisions from other jurisdictions also support our conclusion

that Sodexo makes wholesale sales. In Slater Corp. v. South

Carolina Tax Commission, 242 S.E.2d 439 (S.C. 1978), for example,

the South Carolina Supreme Court interpreted an almost identical

statute under practically identical facts. In that case,

[t]he students contracted with and paid the
colleges, not [the food service supplier], for the
meals. The colleges, in turn, contracted with
and paid [the food service supplier]. The
colleges, not [the food service supplier],
determined who should be entitled to purchase
meals at the dining hall, and if a refund was
given, it came from the college, not from [the
food service supplier].

10The court in A.B. Hirschfeld Press, Inc. v. City & County of Denver
identified a number of factors a court may consider in this context.
806 P.2d 917, 921 (Colo. 1991). They don’t support the City’s
position in this case, and indeed the City doesn’t make any
argument along those lines.

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Id. at 440.11 Therefore, the court concluded, “[t]he meals in

question were clearly purchased for resale with the students buying

their food from the colleges rather than from [the food service

supplier].” Id.

¶ 31 In so holding, the Slater court drew from a Fifth Circuit case,

Hodgson v. Crotty Brothers Dallas, Inc., 450 F.2d 1268, 1281 (5th

Cir. 1971), holding that a food service supplier on school premises

qualified as a “retail establishment” pursuant to the Fair Labor

Standards Act (FLSA). The Fifth Circuit’s holding in Crotty Brothers

rested on the FLSA’s definition of “retail or service establishments,”

which expressly included catering services. Id. at 1280. But in its

analysis of the question, the court recognized the wholesale-like

nature of the types of transactions in that case, this case, and

Slater, noting, “even though no completed meals ever passed from

[the caterer] to the school, it would seem more reasonable to

characterize the transactions involving [the caterer], the school, and

11 Mines gives no refunds.

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the students as sales for resale than as sales directly from [the

caterer] to the students.” Id.12

¶ 32 Hodgson v. Prophet Co., 472 F.2d 196 (10th Cir. 1973), on

which the City relies, is distinguishable. In that case, the court,

like the court in Crotty Brothers, held that a food service supplier

that contracted with a college to serve students qualified as a “retail

and service establishment” under the FLSA. Our case is not, of

course, an FLSA case; we construe materially different tax

provisions. And, in any event, the Tenth Circuit relied on aspects of

12 Our determination also adheres to the more general principle we
follow when interpreting tax provisions, as articulated by the
Supreme Court in Frank Lyon Co. v. United States:

Where, as here, there is a genuine multiple-
party transaction with economic substance
that is compelled or encouraged by business or
regulatory realities, that is imbued with tax-
independent considerations, and that is not
shaped solely by tax-avoidance features to
which meaningless labels are attached, the
Government should honor the allocation of
rights and duties effectuated by the parties
. . . . [T]he form of the transaction adopted by
the parties governs for tax purposes.

435 U.S. 561, 562 (1978). The City doesn’t even allege that the
transactions at issue are structured solely (or at all) as a tax-
avoidance scheme.

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the contract before it that differ in important respects from the one

before us. As the court explained,

All the college did . . . was to collect from each
boarding student . . . the amounts the contract
stipulated [the food service supplier] was
entitled to receive . . . and remit the same to
[the food service supplier]. In other words, all
the college did was to act in the role of a
collection agent, rather than a purchaser.

Id. at 204. The contract in that case “provided that [the food service

supplier] should charge boarding plan students . . . $1.68 each per

day . . . and that the college should remit the aggregate of such

charges collected by it from boarding plan students monthly to [the

food service supplier].” Id. at 199-200 (emphasis added).

¶ 33 In contrast to the terms of that contract, the contract between

Sodexo and Mines stipulates that Mines will purchase from Sodexo

all of the meals it requires to fulfill its contractual obligations to its

students, after Mines alone determines the prices and terms of

those plans. And Sodexo doesn’t charge students. Further, the

food service supplier in Prophet Co. contracted to “operate on its

own credit and at its own risk of loss,” id. at 206, whereas, in this

case, only Mines, not Sodexo, bears the risk of loss if a student fails

to pay for her meal plan.

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¶ 34 Lastly, we acknowledge that our holding conflicts with the

division’s holding in City of Golden v. Aramark Educational Services,

LLC, 2013 COA 45. But with all due respect to the division, we

disagree with its analysis. In Aramark, the division held that

although “both parties have presented several tenable arguments,”

“Golden’s arguments are sufficiently tenable as to create reasonable

doubts that [the food service supplier] is entitled to the wholesale

sales exemption.” Id. at ¶¶ 32, 36. The division stopped there,

declining to determine which of the parties’ “tenable” arguments

was correct.

¶ 35 A “tenable” argument — that is, a merely nonfrivolous or

defensible argument — isn’t necessarily a correct one. Though

we’re required to construe tax exemptions narrowly, resolving all

reasonable doubts against the taxpayer, we don’t think that means

that a taxing entity’s assertion of a nonfrivolous argument for

refusing to apply an exemption can, entirely on the basis of having

been articulated, carry the day. Rather, we must resolve the

meaning of the provision to ensure that a taxpayer isn’t subjected to

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a tax that, under the correct interpretation, it has no legal

obligation to pay.13

¶ 36 The City’s argument in this case is “tenable” but incorrect.

Under the plain language of the Code, Sodexo makes wholesale

sales to Mines; Sodexo doesn’t make direct sales to students who

use BlasterCards. Therefore, under the Code, the City can’t assess

sales tax against Sodexo.

III. Conclusion

¶ 37 The judgment is reversed, and the case is remanded for entry

of judgment for Sodexo and for any other proceedings consistent

with this opinion.

JUDGE GRAHAM and JUDGE WELLING concur.

13 We also observe that no other Colorado appellate case has taken
this “tenable argument” approach, which treats the mere assertion
of a nonfrivolous argument as dispositive. In fact, in Coors Brewing
Co. v. City of Golden, 2013 COA 92, the division subsequently
construed the same wholesale exemption without using that
approach.

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