Document Number
95-65
Tax Type
Retail Sales and Use Tax
Description
Food and grocery items; Federally funded adult day-care
Topic
Taxability of Persons and Transactions
Date Issued
03-30-1995
March 30, 1995




Re: §58.1-1821 Application: Retail Sales and Use Tax



Dear******************

This will reply to your letter of July 6, 1994 in which you seek correction of a sales and use tax assessment for ************** (the "Taxpayer").
FACTS

The Taxpayer is a private, for-profit center providing adult day care services (e.g., bathing, dressing, feeding and other custodial care services) for the elderly and disabled. An audit for the period December 1991 through December 1993 resulted in an assessment for untaxed purchases of food used by the Taxpayer in its operation.

As an eligible institution of the Child and Adult Care Food Program administered by the U. S. Department of Agriculture (USDA), the Taxpayer receives federal funding to reimburse it for the cost of food served to elderly and disabled persons cared for at its facility. The! Taxpayer maintains that the tax assessment is erroneous since these funds are not subject to state taxation.
DETERMINATION

All retail sales of tangible personal property in Virginia are subject to the sales and use tax. The only exceptions are sales specifically exempted in Code of Virginia §§58.1-609.1 through 58.1-609.10. Under principles long established by the courts, the department is mandated to apply a strict construction to these exemptions. Thus, in order for the Taxpayer's food or other tangible purchases to qualify for an exemption, the Taxpayer must satisfy all of the criteria of an exemption statute. For example, Code of Virginia § 58.1-609.8 (3) provides an exemption for:
    • Tangible personal property sold or leased for use in nonprofit nutrition programs for the elderly qualifying under 42 U.S.C. 3030 (e) through (g), as amended, as administered by the Virginia Department for the Aging, and the food and food products sold under such programs to elderly persons and the food and food products sold by such program participants to disabled or handicapped persons under the age of sixty.
While the Taxpayer's activity is similar to the nutrition program exempted under this statute, the Taxpayer operates for profit, and its funding is not pursuant to 42 U.S.C.A. § 3030 e - g and is not administered by the Virginia Department of Aging as required under the exemption. Therefore, since the Taxpayer does not satisfy all of the criteria of the exemption, the exemption does not apply.

In addition, Code of Virginia §58.1-609.10 (6) provides an exemption for "tangible personal property purchased with food coupons issued by the... [USDA] under the Food Stamp Program or drafts issued through the Virginia Supplemental Food Program Women, Infants, and Children (WIC)." Inserts added. However, the Taxpayer is ineligible for this exemption since the Taxpayer does not use food stamp coupons or WIC drafts to purchase food. It is also worth noting that the USDA's Food Stamp and WIC programs are governed by federal laws (U.S.C.A. §§ 2013 (a) and 1786 (c)(4), respectively) which specifically indicate that a state cannot collect sales and use taxes on food stamp or WIC purchases. However, there is no similar prohibition on purchases made through the Child and Adult Care Food Program under which the Taxpayer operates. For instance, Section 226.25 (c) of Title 7 of the Code of Federal Regulation sets out that:
    • The value of assistance to participants under the [Child and Adult Care Food] Program shall not be considered to be income or resources for any purposes under any Federal or State laws, including, but not limited to laws relating to taxation, welfare, and public assistance programs.
Based on the foregoing, it is apparent that the value of food assistance provided to adult participants under the Taxpayer's care cannot be considered as income or sources of revenue to the participants or the Taxpayer for purposes of state income taxation. However, it is also apparent that this federal regulation does not prevent the imposition of a state sales or use tax on the Taxpayer's purchases of food or other tangible personal property provided to enrolled participants. In this regard, the department has not assessed a tax on the Taxpayer's USDA funding, nor has the department assessed a tax on the value of assistance received by the participants of the Program. Rather, the department has assessed a use tax on the cost price of food purchased by the Taxpayer to prepare meals for the elderly and disabled persons under its care.

I am sympathetic to your situation, there is no sales and use tax exemption which would specifically allow the Taxpayer to purchase food or other items exempt of the tax. Therefore, in the absence of a federal statute to prevent the imposition of the tax in this instance or an exemption to apply to the Taxpayer's purchases of food, the department has no authority to grant an exemption.

The Taxpayer will soon receive a Notice of Assessment with interest accrued to present. If you have any questions regarding this letter, please contact***********.
                        • Sincerely,



                          Danny M. Payne
                          Tax Commissioner


OTP/8875R

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46