The Missouri Supreme Court has held that a utility company was properly denied a refund for Missouri sales tax paid on electricity and natural gas provided to grocery stores for operating equipment in their bakery departments such as ovens, retarders, and proofers because the Missouri exemption for electricity and gas used in manufacturing and processing does not apply. The taxpayer argued that the stores’ food preparation activities constituted “processing” for purposes of the exemption, because the stores’ bakery departments transformed raw frozen dough that they received into edible baked goods by using energy and equipment to defrost the dough, allow it to rise, and bake it. The court rejected this argument because “processing,” as used in the exemption statute, did not include in-store preparation of cooked goods for retail sale. The term “processing” as used in the exemption statute must be narrowly construed. The burden was on the taxpayer to show that the stores’ preparation of baked goods for sale in its stores fell within this exemption, and the taxpayer failed to do so. The relevant exemption is for “electrical energy and gas … used or consumed in the manufacturing, processing, compounding, mining, or producing of any product.” The court held that the activities described in the statute can best be described as large-scale industrial activities, not on-site cooking or preparing of food for retail sale. The court stated that one does not speak of a grocery store bakery department as “processing” baked goods any more than one speaks of it as manufacturing, compounding, or producing such goods. Therefore, the term “processing” did not encompass the activities of the stores’ bakery departments. The court also held that the bakery departments of the grocery stores did not constitute bakeries as the term is used in an example in a regulation promulgated pursuant to the relevant tax statute. Regardless, the taxpayer would not have been entitled to the exemption because the statutory term “processing” did not encompass the stores’ activities in preparing baked goods for retail sale in their bakery departments. A statute prevails over a regulation, and a regulation cannot expand or modify a statute. (Union Electric Co. d/b/a Ameren Missouri v. Director of Revenue, Missouri Supreme Court, No. SC93083, March 11, 2014)