U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA 22302 Eastside Fish Fry & Grill, Appellant, v. Case Number: C0199719 Retailer Operations Division, Respondent. FINAL AGENCY DECISION The USDA, Food and Nutrition Service (FNS) finds that there is sufficient evidence to support the Retailer Operations Division s decision to deny the application of Eastside Fish Fry & Grill (Eastside Fish or Appellant) to participate as an authorized retailer in the Supplemental Nutrition Assistance Program (SNAP). Appellant may not reapply for six months from the date of the denial decision. ISSUE The issue accepted for review is whether the Retailer Operations Division took appropriate action, consistent with 7 CFR 271.2 and 278.1(b)(1) in its administration of the SNAP when it denied the application of Eastside Fish to participate as an authorized SNAP retailer. AUTHORITY 7 USC 2023 and the implementing regulations at 7 CFR 279.1 provide that A food retailer or wholesale food concern aggrieved by administrative action under 278.1, 278.6 or 278.7... may file a written request for review of the administrative action with FNS. CASE CHRONOLOGY In a letter dated April 17, 2017, the Retailer Operations Division informed ownership that the application of Eastside Fish to participate as an authorized retailer in SNAP was denied because Appellant s firm does not meet the definition and requirements of a retail food store as set forth in Sections 271.2 and 278.1(b)(1) of the SNAP regulations. The Retailer Operations Division determined that Appellant is primarily a restaurant because hot and/or cold prepared, ready-toeat foods that are intended for immediate consumption, either for carryout or on-premises consumption, and requiring no additional preparation, comprise more than 50% of the firm s 1
total sales. Restaurants are not eligible to participate in SNAP except in certain states that operate special restaurant programs allowing the elderly, disabled, and homeless participants to use SNAP benefits in restaurants. Ownership was informed that the firm could not submit a new application to participate as a SNAP retailer for a period of six months as provided in 278.1(k)(2). In a letter postmarked April 27, 2017, counsel appealed the Retailer Operations Division s decision and requested an administrative review of this action. The appeal was granted. STANDARD OF REVIEW In appeals of adverse actions, the Appellant bears the burden of proving by a clear preponderance of the evidence, that the administrative actions should be reversed. That means the Appellant has the burden of providing relevant evidence which a reasonable mind, considering the record as a whole, would accept as sufficient to support a conclusion that the matter asserted is more likely to be true than not true. CONTROLLING LAW The controlling statute in this matter is contained in the Food and Nutrition Act of 2008, as amended, 7 USC 2018 and 278 of Title 7 of the Code of Federal Regulations (CFR). Part 278.1(k) establishes the authority upon which the application of any firm to participate in the SNAP may be denied if it fails to meet established eligibility requirements. 7 CFR 271.2 states, inter alia that Retail Food Store means: An establishment... that sells food for home preparation and consumption normally displayed in a public area, and either offers for sale, on a continuous basis, a variety of foods in sufficient quantities in each of the four categories of staple foods including perishable foods in at least two such categories (Criterion A)... or has more than 50 percent of its total gross retail sales in staple foods (Criterion B)... Entities that have more than 50 percent of their total gross retail sales in hot and/or cold prepared, ready-to-eat foods that are intended for immediate consumption either for carry-out or on premises consumption, and require no additional preparation, are not eligible for SNAP participation as retail food stores 7 CFR 278.1(b)(1)(i) imparts specific program requirements for retail food store participation, which reads, in part, An establishment... shall... effectuate the purposes of the program if it sells food for home preparation and consumption and meets one of the following criteria: Offer for sale, on a continuous basis, a variety of qualifying foods in each of the four categories of staple foods... including perishable foods in at least two of the categories (Criterion A); or have more than 50 percent of the total gross retail sales of the establishment... in staple foods (Criterion B). 7 CFR 278.l (b)(1)(iii) provides, in relevant part, that in order for a retail store to qualify for authorization under Criterion B, it must... have more than 50 percent of... total gross retail sales in staple food sales. Total gross retail sales must include all retail sales of a firm, including food and non-food merchandise, as well as services... 2
7 CFR 278.1(b)(1)(iv) reads, in relevant part: Firms that are considered to be restaurants, that is, firms that have more than 50 percent of their total gross retail sales in hot and/or cold prepared foods not intended for home preparation and consumption, shall not qualify for participation as retail food stores under Criterion A or B. This includes firms that primarily sell prepared foods that are consumed on the premises or sold for carryout. 7 CFR 278.1(k)(1) Denying authorization, references 7 CFR 278.1(b)(1)(iv) Ineligible firms, which reads, in part,... firms that are considered to be restaurants, that is, firms that have more than 50 percent of their total gross retail sales in hot and/or cold prepared foods not intended for home preparation and consumption, shall not qualify for participation as retail food stores under Criterion A or B. This includes firms that primarily sell prepared foods that are consumed on the premises or sold for carryout. Section 9 of the Food and Nutrition Act of 2008, as amended, states in part, A retail food store or wholesale food concern that is denied approval to accept and redeem benefits because the store or concern does not meet criteria for approval... may not, for at least 6 months, submit a new application to participate in the program. APPELLANT S CONTENTIONS Appellant, through counsel, made the following summarized contentions in its April 27, 2017, administrative review request, and subsequent correspondence dated June 9, 2017, in relevant part: Appellant was previously authorized and although the business never changed, nor its inventory, the application was denied on the grounds that the business was not eligible. Appellant is a raw fish market. There is a significant precedent in the surrounding area where other stores with identical businesses, and even those that operate as a restaurant, have been authorized. Appellant lacks a waiter staff and carries a sufficient amount of eligible food items in addition to their substantial amount of fish. Appellant has more than 50% of their business involving fresh fish and also has qualifying items in the other three categories but the store is most logically qualified under Criterion B. The sale of ineligible hot food is less than fifty percent of the store s overall revenue. The appeal decision is based upon a visual observation of the store instead of an analytical evaluation of the store s business records or inventory. The grocery store may offer people a place to sit but there are no waiters, no reservations, no cleaning staff, and no busboys. Given that the store s space usage is not for purposed of providing people a place to sit and eat, but rather for storage of eligible food items. There is no discernible difference in appearance, inventory, operation or layout between Appellant and other authorized and specifically referenced stores. 3
The State of Michigan does not prepare sales tax returns with a breakout of taxable and non-taxable items; thus it is difficult to provide a specific breakdown of the sales percentage on official records. The store would not be suffering as much if eligible food items were not the majority of its business. The preceding may represent only a brief summary of the Appellant s contentions presented in this matter. However, in reaching a decision, full attention was given to all contentions presented, including any not specifically recapitulated or specifically referenced. ANALYSIS AND FINDINGS It is important to clarify for the record that the purpose of this review is to validate or to invalidate the earlier decision of the Retailer Operations Division, and as such it is limited to consideration of the relevant facts and circumstances at the time of the decision. The authorization of a store to participate in the SNAP must be in accord with the Act and the regulations, as amended; those requirements of law cannot be waived. Appellant, through counsel, contends that it is not primarily a restaurant and that more than 50% percent of its sales are from fresh fish and other eligible food items. Counsel also explains that because there is no wait staff, no reservations, no cleaning staff, and no busboy, the firm should not be considered a restaurant. That appellant does not have any of the previously mentioned characteristics does not preclude it from being considered a restaurant for SNAP purposes. The firm s inventory of staple foods and/or its percentage of sales comprised of staple food items determine eligibility. According to 7 CFR 278.1(b)(1) of the SNAP regulations, a store is considered a restaurant when the majority of foods are actually sold prepared and/or hot and ready-to-eat. Counsel states that the appeal decision is based upon a visual observation of the store instead of an analytical evaluation of the store s business records or inventory. On the application for authorization dated September 16, 2016, and signed by ownership, Appellant indicated that 35 percent of its gross sales come from the sale of staple foods, five percent from accessory foods, and 60 percent of its gross sales are from the sale of hot food. There is nothing in the case record which would indicate that these percentages are not accurate. Thus, the denial determination was based owner s own admission and confirmed by store visit report and photographs. The store s website and Facebook page indicate that the firm is a fast food restaurant and all photographs on the Facebook page are of hot prepared food items with little reference to raw or uncooked foods. The website advertises the following: Are you looking for a new lunch spot ; No matter what you crave, you re in for a delicious meal. Stop in today to see for yourself why our Lansing regulars love dining at Eastside Fish Fry & Grill ; and Cater your next even with food everyone will love. If unprepared items constituted the majority of Appellant s sales, it would be likely that signage indicating the availability of unprepared items would be clearly posted and visible in its social media advertisements and in the store. 4
The store visit report and photographs document an extensive hot food menu. However, Appellant s logo does state You buy it -We fry it or Grill it. Yet, there is no credible evidence in the report and photographs of the March 30, 2017, store visit, nor in the information provided by Appellant, that indicated that Eastside Fish is anything other than primarily a takeout restaurant, a firm that generates more than 50 percent of its income from the sale of hot and/or prepared food. Although raw food items in Appellant s store may be available for sale, it is more likely true than not true that the majority of foods in the store are actually sold prepared and/or hot and ready-to-eat. According to 7 CFR 278.1(b)(1) of the SNAP regulations, such a store is considered a restaurant and is not eligible for SNAP participation as a retail food store. Therefore, based on the evidence, the Retailer Operations Division properly determined that Appellant did not meet the definition of a retail food store under 7 CFR 271.2 and 7 CFR 278.1(b)(1). Michigan Sales and Use Tax Return Counsel alleges that the State of Michigan does not prepare sales tax returns with a breakout of taxable and non-taxable items; thus it is difficult to provide a specific breakdown of the sales percentage on official records. However, the Michigan Department of Treasury form 5095 Use and Withholding Taxes Monthly/Quarterly and Amended Monthly/Quarterly Worksheet specifically identify item 1 Gross sales... and item 5G Food for human/home consumption. A review of the State of Michigan Department of Treasury website reveals that the instructions for completion of item 5G on form 5095 states Enter the total of retail sales of grocery-type food, excluding tobacco and alcoholic beverages. Prepared food is subject to tax. The following are the forms that Michigan firms use to file its sales and use taxes: https://www.michigan.gov/documents/taxes/5080_546916_7.pdf This form directs the business owner to report information on Line 1a-2b from Worksheet 5095. https://www.michigan.gov/documents/taxes/5095_546957_7.pdf Here is where business owners would separate their taxable goods (hot prepared food items) from its non-taxable good (food for home consumption) on line 5g. Thus, contrary to counsel s contention, Michigan sales and use tax does breakout taxable and non-taxable items. Criterion A and B Counsel reports that Appellant has more than 50% of their business involving fresh fish and also has qualifying items in the other three staple food categoires but the store is most logically qualified under Criterion B. As required under Criterion A of 7 CFR 278.1(b)(1)(ii) of the SNAP regulations, in order to participate as an authorized retailer in SNAP a store must offer for sale on a continuous basis a variety of staple foods in each of the four staple food categories: (1) dairy products; (2) vegetables or fruits; (3) breads and cereals; and, (4) meat, poultry, fish; as evidenced by having, on any given day of operation, no fewer than three different varieties of food items in each of the 5
four staple food categories. 7 CFR 278.1(b)(1)(ii) of the SNAP regulations define Variety as different types of foods such as milk, cheese, butter and yogurt in the dairy category. Variety of foods is not to be interpreted as different brands, different nutrient values, different varieties of packaging or different package sizes... The store visit report documents that Appellant only carried two varieties of food (milk and cheese) in the dairy staple food category on the day of the store visit. Therefore, based on the information contained in the store visit materials Eastside Fish did not meet the requirements of Criterion A as required for SNAP authorization. As indicated previously, the administrative record includes a copy of the FNS 252 application for SNAP reauthorization submitted by Appellant on March 7, 2017. The document indicates 35 percent of Appellant s total retail sales was attributable to the sale of staple food items; five percent was attributable to other foods such as snack foods, soft drinks, or condiments; and, 60 percent was attributable to hot food sales. Further, the Retailer Operations Division noted that based on the store visit materials, including photographs, it is clearly evident that a majority of the firm s retail revenue has to come from prepared, ready-to-eat, foods sold for dining in the firm s sit down area and/or prepared for carryout. Thus, Appellant did not meet the conditions as required under Criterion B as cited in 7 CFR 278.1(b)(1)(iii) of the SNAP regulations. Again, regardless of Criterion A or B considerations, a restaurant or carry-out operations is not eligible to participate in the SNAP. Authorization of Other Firms Appellant, through counsel, contends that Appellant was previously authorized to accept SNAP benefits and that there are similar firms in the area that are SNAP authorized. It is beyond the scope of this review to evaluate whether the previous firm was authorized correctly; rather the scope of this review is limited to an evaluation of whether or not the Retailer Operations Division acted in accordance with the statute and regulations when it denied Eastside Fish s application for authorization on April 17, 2017. This administrative review is limited solely to those circumstances concerning Eastside Fry s eligibility and, therefore, the firm s contention regarding other firms being authorized cannot be used to reverse the decision of the Retailer Operations Division. CONCLUSION The initial decision by the Retailer Operations Division to deny the application of Eastside Fish to participate as a retailer in SNAP for a period of six months from the effective date of denial is sustained. In accordance with 7 CFR 278.1(k)(2), Appellant shall not be eligible to submit a new application for SNAP authorization for six months from April 17, 2017, the date of the denial letter. 6
RIGHTS AND REMEDIES Applicable rights to a judicial review of this decision are set forth in 7 USC 2023 and 7 CFR 279.7. If a judicial review is desired, the Complaint, naming the United States as the defendant, must be filed in the U.S. District Court for the district in which the Appellant s owner resides or is engaged in business, or in any court of record of the State having competent jurisdiction. If any Complaint is filed, it must be filed within thirty (30) days of receipt of this Decision. Under the Freedom of Information Act, we are releasing this information in a redacted format as appropriate. FNS will protect, to the extent provided by law, personal information that could constitute an unwarranted invasion of privacy. MARY KATE KARAGIORGOS July 19, 2017 ADMINISTRATIVE REVIEW OFFICER DATE 7