Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Meals furnished to nonprofit hospital.
Topic
Taxability of Persons and Transactions
Date Issued
05-19-1998
May 19,1998
Re: Section 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek correction of sales and use tax assessed to your client, ***** (the "Taxpayer"), for the period December 1993 through November 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a nonprofit hospital and part of a governmental authority. The Taxpayer operates a cafeteria that makes retail sales of food and provides catering to unrelated entities. In addition, the cafeteria provides catered food for hospital-related meetings. For accounting purposes, the Taxpayer uses dietary transfers to charge each department for the catered food. The auditor assessed tax on the dietary transfers in accordance with prior department rulings.
The Taxpayer contends the prior rulings are not applicable in this case and believes the hospital is exempt from the tax on the dietary transfers. The Taxpayer cites the government exemption under Code of Virginia Section 58.1-609.1(4) and the nonprofit hospital exemption under Code of Virginia Section 58.1-609.7(4) to support its claim.
The Taxpayer also believes the dietary transfers qualify as exempt meals furnished to employees under Title 23 of the Virginia Administrative Code (VAC) 10-210-390 (formerly Virginia Regulation 630-10-64).
DETERMINATION
Government Exemption/Nonprofit Hospital Exemption
Code of Virginia Section 58.1-609.1(4) provides an exemption from the sales tax for purchases of tangible personal property by the federal government and state and local governments of Virginia. Title 23 VAC 10-210-690 provides further guidance on the application of the exemption. Section B of the regulation states that charges for meals and catered events are subject to the tax when purchased by a state or local government, regardless of whether the purchases are pursuant to official purchase orders.
In addition, Code of Virginia Section 58.1-609.7(4) provides an exemption for tangible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home.
The department has addressed the application of the tax to sales of meals and catering services to governments and nonprofit hospitals in a number of prior rulings. The department has consistently held sales of meals to governments for consumption by individuals as taxable. Such sales, however, are exempt when sold to governments for consumption by them or for use in the provision of their services.
The same rationale applies to sales of catered meals to nonprofit hospitals for consumption by individuals other than patients, such as medical staff and hospital employees. The sales do not qualify for exemption because they are not used and consumed by the hospital in connection with the hospital's medical services. Alternatively, sales of food for use in the preparation of meals for consumption by patients qualify for exemption.
The department's position relies heavily on an opinion of the Virginia Attorney General (Att'y. Gen. Ann. Rep.: 1969 -1970 at 291). The opinion addressed the application of the government exemption to catered meals purchased by the state with public funds and consumed by guests attending a conference hosted by the state. The opinion referenced "use" (as defined in Code of Virginia Section 58.1-602) as meaning the exercise of any right or power over tangible personal property incident to the ownership thereof. The Attorney General concluded that the purchase of meals by the state for consumption by banquet guests did not sufficiently reflect "use" or the exercise of control by the Commonwealth over the food to warrant exemption.
You make the point that the Attorney General opinion and the department's prior rulings deal with circumstances involving the provision of catered meals by a third party. It is your belief that this case differs from the prior rulings in that the Taxpayer does not purchase catered meals from a third party, but instead purchases raw food products and prepares the meals in its own cafeteria facility, which are then provided to the various departments. Because of this, you maintain the Taxpayer exercises control over the food as tangible personal property sufficient to qualify for exemption under Code of Virginia Sections 58.1-609.1(4) and 58.1-609.7(4).
I cannot agree with you. The department addressed the issue of dietary transfer charges for catered meals provided by a nonprofit hospital's food service division to various departments of the hospital in Public Document (P.D.) 95-70 (4/3/95). Because the food was provided for consumption by individuals other than patients, the tax was upheld. The tax applies regardless of whether the food is purchased from a third party or prepared on-site by the hospital.
Meals Furnished to Employees
Title 23 VAC 10-210-390 addresses the application of the tax to sales of meals by restaurants, hotels, caterers, and other food service providers. Section C of the regulation discusses meals furnished to employees and provides that such meals when furnished free of charge are not subject to the tax.
Alternatively, you propose that the Taxpayer is a food service provider because it operates a cafeteria and that meals furnished to hospital employees without charge are exempt from the tax under the regulation.
The cited regulation applies to businesses engaged as food service providers. The Taxpayer is a licensed nonprofit hospital engaged in the provision of medical services. As part of such services, the Taxpayer is required to provide meals to patients. Therefore, purchases of raw food products for use in the preparation of meals served to patients may be purchased exempt of the tax under the nonprofit hospital exemption. Dietary transfers or any other transactions in connection with the provision of food by the Taxpayer for consumption by individuals other than patients are taxable.
The department's policy is longstanding and has been consistently applied. The Taxpayer must accrue the tax on the dietary transfers and remit the tax directly to the department on Form ST-9, Dealer's Retail Sales and Use Tax Return. The policy in this area is established and therefore, l do not feel a conference is necessary.
The Taxpayer will receive an updated bill including accrued interest which should be paid within 30 days to avoid the accrual of additional interest charges. Payment should be sent to ****, Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions, you may contact **** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12817J
Re: Section 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek correction of sales and use tax assessed to your client, ***** (the "Taxpayer"), for the period December 1993 through November 1996. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a nonprofit hospital and part of a governmental authority. The Taxpayer operates a cafeteria that makes retail sales of food and provides catering to unrelated entities. In addition, the cafeteria provides catered food for hospital-related meetings. For accounting purposes, the Taxpayer uses dietary transfers to charge each department for the catered food. The auditor assessed tax on the dietary transfers in accordance with prior department rulings.
The Taxpayer contends the prior rulings are not applicable in this case and believes the hospital is exempt from the tax on the dietary transfers. The Taxpayer cites the government exemption under Code of Virginia Section 58.1-609.1(4) and the nonprofit hospital exemption under Code of Virginia Section 58.1-609.7(4) to support its claim.
The Taxpayer also believes the dietary transfers qualify as exempt meals furnished to employees under Title 23 of the Virginia Administrative Code (VAC) 10-210-390 (formerly Virginia Regulation 630-10-64).
DETERMINATION
Government Exemption/Nonprofit Hospital Exemption
Code of Virginia Section 58.1-609.1(4) provides an exemption from the sales tax for purchases of tangible personal property by the federal government and state and local governments of Virginia. Title 23 VAC 10-210-690 provides further guidance on the application of the exemption. Section B of the regulation states that charges for meals and catered events are subject to the tax when purchased by a state or local government, regardless of whether the purchases are pursuant to official purchase orders.
In addition, Code of Virginia Section 58.1-609.7(4) provides an exemption for tangible personal property for use or consumption by a nonprofit hospital or a nonprofit licensed nursing home.
The department has addressed the application of the tax to sales of meals and catering services to governments and nonprofit hospitals in a number of prior rulings. The department has consistently held sales of meals to governments for consumption by individuals as taxable. Such sales, however, are exempt when sold to governments for consumption by them or for use in the provision of their services.
The same rationale applies to sales of catered meals to nonprofit hospitals for consumption by individuals other than patients, such as medical staff and hospital employees. The sales do not qualify for exemption because they are not used and consumed by the hospital in connection with the hospital's medical services. Alternatively, sales of food for use in the preparation of meals for consumption by patients qualify for exemption.
The department's position relies heavily on an opinion of the Virginia Attorney General (Att'y. Gen. Ann. Rep.: 1969 -1970 at 291). The opinion addressed the application of the government exemption to catered meals purchased by the state with public funds and consumed by guests attending a conference hosted by the state. The opinion referenced "use" (as defined in Code of Virginia Section 58.1-602) as meaning the exercise of any right or power over tangible personal property incident to the ownership thereof. The Attorney General concluded that the purchase of meals by the state for consumption by banquet guests did not sufficiently reflect "use" or the exercise of control by the Commonwealth over the food to warrant exemption.
You make the point that the Attorney General opinion and the department's prior rulings deal with circumstances involving the provision of catered meals by a third party. It is your belief that this case differs from the prior rulings in that the Taxpayer does not purchase catered meals from a third party, but instead purchases raw food products and prepares the meals in its own cafeteria facility, which are then provided to the various departments. Because of this, you maintain the Taxpayer exercises control over the food as tangible personal property sufficient to qualify for exemption under Code of Virginia Sections 58.1-609.1(4) and 58.1-609.7(4).
I cannot agree with you. The department addressed the issue of dietary transfer charges for catered meals provided by a nonprofit hospital's food service division to various departments of the hospital in Public Document (P.D.) 95-70 (4/3/95). Because the food was provided for consumption by individuals other than patients, the tax was upheld. The tax applies regardless of whether the food is purchased from a third party or prepared on-site by the hospital.
Meals Furnished to Employees
Title 23 VAC 10-210-390 addresses the application of the tax to sales of meals by restaurants, hotels, caterers, and other food service providers. Section C of the regulation discusses meals furnished to employees and provides that such meals when furnished free of charge are not subject to the tax.
Alternatively, you propose that the Taxpayer is a food service provider because it operates a cafeteria and that meals furnished to hospital employees without charge are exempt from the tax under the regulation.
The cited regulation applies to businesses engaged as food service providers. The Taxpayer is a licensed nonprofit hospital engaged in the provision of medical services. As part of such services, the Taxpayer is required to provide meals to patients. Therefore, purchases of raw food products for use in the preparation of meals served to patients may be purchased exempt of the tax under the nonprofit hospital exemption. Dietary transfers or any other transactions in connection with the provision of food by the Taxpayer for consumption by individuals other than patients are taxable.
The department's policy is longstanding and has been consistently applied. The Taxpayer must accrue the tax on the dietary transfers and remit the tax directly to the department on Form ST-9, Dealer's Retail Sales and Use Tax Return. The policy in this area is established and therefore, l do not feel a conference is necessary.
The Taxpayer will receive an updated bill including accrued interest which should be paid within 30 days to avoid the accrual of additional interest charges. Payment should be sent to ****, Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions, you may contact **** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12817J
Rulings of the Tax Commissioner