Tax Type
Retail Sales and Use Tax
Description
Food service contract to for-profit healthcare facility; Separate fees in food contract
Topic
Taxability of Persons and Transactions
Date Issued
07-12-1996
July 12, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear***************
This is in reply to your letter of April 11, 1996, in which you request a ruling on the application of the sales and use tax to food services provided to your client, *****************(the "Taxpayer").
FACTS
The Taxpayer is a for-profit rehabilitation and healthcare facility. The Taxpayer entered into a food service agreement with a food service company and requests a ruling on whether the total costs or a portion of the costs for food items, labor costs, and management fees qualifies for exemption from the sales tax.
RULING
The department has addressed this issue in prior rulings, a sampling of which is enclosed. Generally, the department views management and other service fees billed in connection with the provision of food to for-profit hospitals and nursing homes who furnish meals to patients as part of their overall services as taxable.
Recently in P.D. 96-93 (5/16/96), the department reviewed a food service contract where the food service provider separately billed the taxpayer for food, supplies, wages and management fees. While the structure of the contract in the ruling differed slightly from previously reviewed contracts, the department maintained that management and other service fees are taxable when related to the provision of food to for-profit hospitals and nursing homes for patient meals.
Based on this analysis and upon review of the Taxpayer's agreement, I do not recognize any variations from previous contracts reviewed by the department that would warrant exclusion of any portion of the costs billed under the agreement from the application of the sales tax.
It is my understanding that the Taxpayer is currently undergoing a sales and use tax audit and that the application of the sales tax to the costs billed under the agreement presented for review in this ruling request constitutes a major issue in the audit. The auditor has correctly applied the tax based on the department's well established policy as set forth in the prior rulings. If there are other issues remaining at the conclusion of the audit, the Taxpayer may appeal at that time.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11130J
Rulings of the Tax Commissioner