Tax Type
Retail Sales and Use Tax
Description
Food sales to state government agencies
Topic
Taxability of Persons and Transactions
Date Issued
04-08-1996
April 8, 1996
RE: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will reply to your letter of June 12, 1995, in which you seek correction of a sales and use tax assessment to ****** (the "Taxpayer") for the period March 1992 through February 1995.
FACTS
The Taxpayer is a nonprofit state medical college. As a result of the department's audit, an assessment was made for certain untaxed food sales by the Taxpayer's cafeteria division. The Taxpayer contests two issues in the audit for the tax imposed for: (i) non-cash food sales to interdepartmental divisions pursuant to an official purchase order and paid for by public funds; and (ii) food sales to unrelated nonprofit hospital residents and staff members attending educational training and meetings at the college.
The Taxpayer maintains that food sales to interdepartmental divisions are exempt under Code of Virginia § 58.1-608.1(4) and Virginia Regulation (VR) 630-10-45 (D)(1). With regard to the food sales to unrelated nonprofit hospital residents and staff, the Taxpayer maintains that it accepted certificate of exemption Form ST-13 in good faith from those entities.
I will address each issue separately below.
DETERMINATION
Food sales to interdivisional employees: The issue in this case is whether food sold and served by a nonprofit state educational institute to interdivisional divisions constitutes tangible personal property used or consumed by the Taxpayer.
Under longstanding Virginia case law, exemptions from the tax are to be strictly construed, with any doubts resolved against the taxpayer claiming exemption. The Attorney General's opinion (ATT'Y GEN. ANN. REP.: 1969-1970 at 291) concluded that state government agencies do not enjoy an exemption from the sales tax when purchasing meals. The same is true regardless of whether purchases are paid for directly by the agency and out of public funds.
In a case analogous to the Taxpayer's situation, the sale of food and catering services by a nonprofit state university to interdepartmental divisions was deemed taxable. See enclosed P.D. 84-277 (11/4/84). The department's policy with respect to food sales to state agencies and nonprofit entities is well established. I have enclosed Ruling of the Tax Commissioner dated January 12, 1982 and P.D.'s 88-116 (5/19/88) and 89-291 (10/27/89) which further address this issue.
Based on the foregoing, the provision of food to interdepartmental divisions in any form is subject to tax. I find that the tax assessed to interdivisional food sales to be correct.
Exemption Certificates: VR 630-10-20(B) explains that the burden of proving that the tax does not apply rests with a dealer unless he takes, in good faith from the purchaser, a certificate of exemption indicating that the property is exempt under the law. The regulation further provides that "[a]n exemption certificate cannot be used to make a tax-free purchase of any item of tangible personal property not covered by the exact wording of the certificate." The seller must use reasonable care and judgement in selling tangible personal property exclusive of the tax, even when an exemption certificate from the purchaser is in his files.
It is my understanding that the nonprofit entities in question provided the Taxpayer with certificate of exemption Form ST-13 on an annual basis. The Taxpayer was only able to provide the department with certificates of exemption from those entities with an effective date of June 1, 1993. The auditor excluded from the audit exceptions any sales after that date.
Sales prior to June 1, 1993 were held in the audit. I should note that the Taxpayer has been informed that food sales to nonprofit hospital residents and staff is subject to the tax and that the Taxpayer is currently collecting the tax on such sales.
Although the assessment is correct, based upon the Taxpayer's acceptance of the certificates of exemption in good faith, l will agree to remove from the audit the tax imposed upon food sales to these unrelated nonprofit entities and the tax imposed upon those items will be abated.
The Taxpayer will receive a revised "Notice of Assessment" reflecting the taxable sales of meals to unrelated nonprofit entities, including applicable interest, which should be paid within 30 days to avoid accrual of additional interest charges.
If you have any questions regarding this letter, please contact **** at****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9872T
Rulings of the Tax Commissioner