Tax Type
Retail Sales and Use Tax
Description
Lodging; College-owned inn
Topic
Taxability of Persons and Transactions
Date Issued
05-24-1996
May 24, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This will respond to your letter in which you seek correction of sales and use tax assessments issued to***** (the "Taxpayer") for the period February 1991 through January 1994.
FACTS
The Taxpayer operates as a private, nonprofit college. At issue in this case is the purchase of food served at college events such as board meetings, alumnae functions, and similar activities. Also under protest are purchases made by two subsidiary organizations owned by the Taxpayer:***** (the "Inn") ******** (the"Dairy").
The Taxpayer maintains that these purchases are exempt under Code of Virginia §§ 58.1-609.4(2) and 58.1-609.4(4).
DETERMINATION
Food purchases: Code of Virginia § 58.1-609.4(2) provides an exemption for tangible personal property for use or consumption by a nonprofit college or other institution of learning. This exemption applies to tangible personal property for use or consumption by the college, including purchases of educational supplies, equipment, and administrative supplies used by these educational entities to provide educational services. The exemption also applies to food purchases which are provided to students as part of room, board and tuition charges.
The exemption does not extend to purchases of food to be consumed by non--students. In these cases, the Taxpayer is not entitled to the exemption from the tax on purchases of food consumed by individuals because the Taxpayer exercises no control over the consumption of such food. The tax does not apply to students' meals because the meals are provided in connection with the provision of educational services.
This determination is supported by a 1970 opinion of the Virginia Attorney General which held that the exemption for tangible personal property for use or consumption by the Commonwealth did not extend to the purchase of meals even though the meals were purchased for governmental purposes and paid for out of public funds (1969-1970 Att'y Gen. Ann. Rep. 291). The scope of the governmental exemption is identical to that for nonprofit colleges. It is therefore the department's position that the exemption available to colleges does not extend to the purchase of food. I would also note that the 1970 opinion was affirmed in an informal opinion issued January 11, 1993. Both of these opinions are attached to the enclosed Public Document 95-70 which addresses the issue of food purchased by nonprofit hospitals.
The exemption available under Code of Virginia § 58.1-609.4(4) applies to:
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- Tangible personal property and services purchased by an educational institution doing business in the Commonwealth which (i) admits regularly enrolled high school and college students and (ii) provides a face-to-face educational experience in American government, a program which leads towards the successful completion of United States history, civics, and problems in democracy courses in high school, or which is acceptable for full credit towards an undergraduate or graduate level college degree, provided such institution is conducted not for profit.
This statute is intended to apply to organizations which focus on providing certain experiences in American government and United States history. The experience requires program participants attend lectures, workshops and seminars that include presentations by state and national government officials and which also include sessions of Congress or committee hearings.
I understand that the Taxpayer offers programs similar to those of other schools and colleges - traditional courses of study in government and history, and speaker programs and graduation speakers - but does not offer the face-to-face educational experience envisioned in the exemption. The Virginia courts have consistently required strict construction of sales and use tax exemptions. See Golden Skillet CorPoration v. Commonwealth, 214 Va 276, 199 S.E.2d 511 (1973). In the instant case, therefore, the judicial doctrine of strict construction would preclude the exemption.
Accordingly, the contested charges for the purchase of food are taxable as assessed. As you are aware, the department has reviewed its tax policy applicable to the purchase of food by colleges and other institutions of learning. The department's position, as set forth in this determination, is consistent with long-standing policy which has been applied to state and local government agencies and other nonprofit organizations which enjoy sales tax exemptions only on their purchases of tangible personal property.
Inn and Dairy purchases: In addition to the food purchases, you maintain that the exemptions set out in Code of Virginia §§ 58.1-609.4(2) and 58.1-609.4(4) also apply to purchases made by the Inn and the Dairy.
The Inn is located on the Taxpayer's campus. It is owned and operated by the Taxpayer to provide lodging for visiting faculty, Board members and other college guests. You indicate that the Inn was constructed through private donations to provide overnight accommodations in light of the Taxpayer's relatively isolated location. Protested purchases made by this facility primarily include furniture and fixtures and landscaping materials.
The Dairy is also owned and operated by the Taxpayer. Its function appears to be the provision of dairy products for the Taxpayer and also for market. Protested purchases for this entity include primarily building materials and computer equipment.
Regardless that these entities are owned by the Taxpayer, neither is itself a "college or other institution of learning." In this regard, the enclosed Public Document 91-154 addresses an analogous situation involving the relationship between an exempt organization and a taxable support organization. Accordingly, the contested purchases by the Inn are taxable as set out in Virginia Regulation (VR) 630-10-48. This document indicates that purchases of furniture and other tangible personal property by hotels, motels, inns and similar businesses are taxable.
The Dairy, however, may qualify for the industrial manufacturing exemption set out in VR 630-10-63. This exemption applies to tangible personal property, including machinery and tools, used directly and preponderantly in manufacturing and processing products for sale or resale. The purchase of building materials would clearly remain taxable because such materials are not used directly in manufacturing or processing activities. There is no indication that other assessed purchases, including the computer equipment, qualify for this exemption. The department will certainly review whatever information you can provide on these other items.
The department will work with you and the Taxpayer should you decide to pursue a legislative exemption on this issue. Enclosed is a questionnaire for legislative consideration of a sales and use tax exemption and Tax Bulletin 94-13 which explains the procedure and information required. If you are interested in pursuing legislation which would provide an exemption for food purchased by colleges and other institutions of learning, the questionnaire should be completed and forwarded to a legislator who will sponsor the bill for exemption in the 1997 General Assembly.
Based on the information now before me, the assessments are correct. Audit interest assessed to the Taxpayer will be accrued only through January 5,1995, which is the date of the last correspondence from other schools and colleges regarding the issue of food purchases. Any additional information regarding the potential exemptions available to the Dairy purchases should be submitted within 30 days to***** in my Office of Tax Policy at P.O. Box 1880; Richmond, VA 23218-1880.
If you have any questions regarding this letter, you may contact*****at*****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/86551
Rulings of the Tax Commissioner