Tax Type
Retail Sales and Use Tax
Description
Application of the retail sales and use tax to sales of meal plan services.
Topic
Collection of Tax
Exemptions
Nonprofits
Tangible Personal Property
Date Issued
12-21-2012
December 21, 2012
Re: Ruling Request: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of an undisclosed client (the "Taxpayer"), in which you request a ruling regarding the application of the retail sales and use tax to sales of the Taxpayer's meal plan services. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer provides meal plan services to grade school students, university students (primarily at fraternity and sorority housing facilities) and a private primary educational facility in Virginia. The Taxpayer entered into a contract with a Virginia customer for the provision of meals plan services. The Taxpayer and customer mutually agree on the menu and portion sizes of the meals. The Taxpayer is responsible for purchasing all the food, providing a chef to prepare the meals, serving the meals, and keeping the kitchen and dining room service areas clean during and after service of all meals. The Taxpayer will also provide certain food items for a fixed fee in accordance with the customer's specifications. The Taxpayer prepares a specific number of meals based on the customer's daily count of students desiring to purchase a meal. The Taxpayer incorporates a management fee into the per-plate cost billed to the customer, which in turn sells the meals to its students for a fixed price.
The Taxpayer sets out five scenarios related to the meal services contract described above. The Taxpayer bases the taxability of the meals provided under each scenario on the authorities of the Virginia Code, regulations, and public documents issued by the Department. The Taxpayer seeks confirmation from the Department that the application of the sales and use tax to the meals provided under each scenario is proper.
RULING
Retail Sales
Virginia Code § 58.1-603 imposes the sales tax upon "every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth . . . ." Virginia Code § 58.1-625 sets out the collection requirements for dealers and states "the dealer shall separately state the amount of the tax and add such tax to the sales price or charge." Further, Va. Code § 58.1-602 defines "sales price" as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . ."
For-Profit Schools
Title 23 of the Virginia Administrative Code 10-210-4020 B sets out the regulations for schools, colleges and other educational institutions that are conducted for profit. This regulation specifically sets out the following:
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- The tax applies to sales of tangible personal property to schools, colleges and other institutions of learning when they are conducted for profit. They are required to pay the tax to their vendors at the time of purchase, unless their purchases are made for resale as dealers. All sales of tangible personal property made by such institutions are taxable. In addition, the institutions must collect the tax on any retail sales of meals to students or others, if the price of the meals is not included in room, board, or tuition charges or fees.
Taxation of Food
In Chesapeake Hospital Authority v. Commonwealth, 262 Va. 551, 554 S.E.2d 55 (2001), the Virginia Supreme Court's opinion noted that in rulings regarding the taxation of food or meals, the Tax Commissioner has looked to who was the actual consumer of the food or the meals to determine if the purchase of food qualifies for exemption. For example, in cases where catered meals are provided to state or local government agencies for banquets, meetings, parties or similar functions, the Tax Commissioner has ruled that the food served at such events is consumed by the individuals attending the event rather than the government agency holding the event. Thus, the food is subject to taxation.
However, the Tax Commissioner has agreed that exemptions for tangible personal property apply to food provided by a qualifying school, nonprofit organization or government agency to individuals as part of the official function of the school, organization or government agency. In such cases, the school, organization or government agency exercises sufficient dominion and control over the food to consider it the user or consumer of the food. This is because the organization is required to provide the food or meals to individuals as part of its official function or operation. Keeping the above in mind, I will address each scenario as presented in your letter.
Scenario 1
What are the Taxpayer's Virginia sales and use tax responsibilities under a flat fee per person or per plate under the Meal Service Plan with a Virginia customer?
The Taxpayer cites Public Documents (P.D.) 86-57 (3/21/86), 96-93 (5/16/96), and 86-112 (6/25/86) that address the sale of meals by food service operators to customers that provide such meals to their residents/patient, as part of the overall services they provide. In such instances, the Tax Commissioner ruled that the charge by the food service operators, inclusive of any management or service fees, is subject to the tax. Based on the above rulings, the Taxpayer believes that the transfer of food by the Taxpayer to the customer for consideration is a taxable sale, even if the customer furnishes the meals to its students and faculty as part of the services it provides.
The rulings cited by the Taxpayer address the sale of Food to for-profit nursing homes and hospitals that provide the meals to their residents/patients as part of the overall services provided. In those rulings, the Tax Commissioner deemed the for-profit nursing homes and hospitals as the ultimate user or consumer of the meals provided to its residents/patients and was subject to the sales tax on the purchase of such meals.
The Taxpayer is not clear in this scenario whether the Virginia customer is a for-profit college or school. However, the Taxpayer is correct that the tax applies to the sale of meals to a for-profit school or college that provides the meals to students and others as a part of the overall services provided. This is consistent with Title 23 VAC 10-210-4020 B.
Scenario 2
What are the Taxpayer's Virginia sales and use tax responsibilities under Scenario 1 in which the customer charges each student the same or similar fee for each lunch plate?
In this scenario, the customer is actively engaged in the business of selling food to students. Pursuant to Title 23 VAC 10-210-4020 B, the customer is responsible for collecting and remitting sales tax to the Department based on the total sales price of the meals sold to the students or others because the price of the meals is not included in room, board or tuition charges or fees. The Taxpayer is correct that the sale of meals to the customer under this scenario are sales for resale in accordance with the resale exemption found in the definition of "retail sale" in Va. Code § 58.1-602. The Taxpayer may make such sales exempt of the tax provided they receive from the customer a completed resale exemption certificate (Form ST-10). See Va. Code § 58.1-623 and Title 23 VAC 10-210-280 for guidance regarding the use of exemption certificates.
Scenario 3
What are the Taxpayer's Virginia sales and use tax responsibilities under both Scenarios above, to the extent the Taxpayer charges a set price for a fixed number of meals per day?
The same rationale applies as stated in Scenarios 1 and 2.
Scenario 4
To the extent the customer is a tax-exempt entity for sales tax purposes, may the Taxpayer accept the customer's Virginia sales and use tax exemption certificate on the purchase of meals under the meal services plan?
The Taxpayer believes that according to P.D.'s 96-196 (8/14/96) 96-153 (6/24/96), 95-127 (5/19/95), and 96-98 (5/24/96), the Taxpayer may not accept the customer's exemption certificate because the Department has consistently held that the food is not consumed by the nonprofit college or school, but instead consumed by the individuals to whom the food is served.
In P.D. 96-196, the Tax Commissioner ruled that the sale of box lunches to a church affiliated school that served the lunches to students qualified for the exemption for churches in Va. Code § 58.1-609.10 16 (formerly Va. Code 58.1-609.8 2). This same ruling held that sales of prepared food to a high school for a teachers' social event during regular school hours was subject to the tax because it was not used or consumed by the college or school, but instead by the individuals to whom it is served. In P.D. 96-98 (5/24/96), the Tax Commissioner agreed that food purchased by a nonprofit college from a caterer would qualify for exemption when the food was provided to students as part of a meal plan that was included in the students' tuition. By contrast, this same ruling explains that if the food purchased from the caterer is served at meetings, alumnae functions and similar activities, the purchase of the food is taxable because the college exercises no control over the food consumed by the individuals attending these events.
The Taxpayer's position is not totally correct. Based on the above cited public documents and the Virginia Supreme Court case referenced above, a qualifying nonprofit college, school or private learning facility would qualify for exemption from the tax on the purchase of meals when such meals are provided to students as part of a meal plan that is included in the students' tuition. In this instance, the Taxpayer may accept a certificate of exemption from the qualifying nonprofit entity. By contrast, if the meals purchased by the nonprofit entity are served to students and others at social or other similar events, the food is deemed to be consumed by the individuals attending the event rather than the nonprofit entity holding the event. In this instance, the customer's purchase of the meals is subject to the Virginia sales and use tax. The Taxpayer may not accept a certificate of exemption from the nonprofit college or school in this situation.
Scenario 5
To the extent the customer is a fraternity or sorority house at a university, are the Taxpayer's sales subject to Virginia sales tax?
Title 23 VAC 10-210-930 specifically addresses the sale of meals to fraternities, sororities, and other student societies and provides that "[fraternities, sororities and other student societies, with members residing at a common location and jointly sharing household expenses, including meals, are not considered to be selling at retail, so meals furnished to members are not taxable. Sales of food, beverages and other tangible personal property to these organizations are sales at retail and subject to the tax. Caterers and other persons selling meals to fraternities and sororities are required to collect and pay the tax on the sales price."
Accordingly, the Taxpayer's sale of food to fraternity or sorority houses is subject to the Virginia sales tax. The Taxpayer would be required to collect the sales tax on the sale of such meals.
This ruling is based on the facts presented by the Taxpayer as summarized in this letter. Any change in the facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulations, public documents, and court case cited are available on line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this ruling, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4793524537.T
Rulings of the Tax Commissioner