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
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 March 1994 through February 1997. 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 and provides food and beverages for employee functions and hospital-related seminars. In addition, the Taxpayer provides free meals to volunteer workers and nonemployees who attend hospital-sponsored training programs.
For accounting purposes, the Taxpayer uses dietary transfers to charge each department for food and beverages consumed by its staff. The auditor assessed the tax on the dietary transfers, as well as, the free meals. The tax was assessed in accordance with prior rulings of the department.
The Taxpayer disputes the tax and contends that the provision of food products and meals to hospital staff, volunteers, and other individuals by its food service division is not taxable because a sale, as defined under Code of Virginia Sec. 58.1-602, does not take place between the Taxpayer and the individuals consuming the food.
DETERMINATION
The department addressed a case with an almost identical set of facts in Public Document (P.D.) 95-70 (4/3/95). The ruling dealt with a nonprofit hospital that used its food service division to provide food products and catered meals to various hospital departments for staff meetings and special events. In addition, the taxpayer provided "pink slips' to employees and volunteers for free meals in the cafeteria.
The Tax Commissioner held the hospital's dietary transfer charges taxable because the food was not consumed by the hospital in the provision of its medical services. The charges were deemed sales, as defined under Code of Virginia Sec. 58.1602. In addition, the tax was upheld on the cost price of food items used in the "pink slip' meals as the meals were provided free of charge.
The ruling cites P.D. 84-227 (11/7/84) which addresses the application of the tax to meals and catering services provided by a nonprofit state university to various university departments. In P.D. 84-227, the Tax Commissioner determined that the government exemption did not apply because the meals were not consumed by the otherwise exempt university. As such, the charges were considered sales of tangible personal property subject to the tax.
The same rationale applies in this case. The Taxpayer does not consume the food products and meals in the provision of its medical services. While the Taxpayer may qualify for exemption under the government and nonprofit hospital exemptions, the exemptions are not applicable in this instance. Consistent with P.D. 95-70 and P.D. 84-227, the dietary transfers constitute sales, as defined in Code of Virginia Sec. 58.1-602. In addition, the tax applies to the cost price of the food items used in the free meals. Because the tax was properly assessed, there is no basis to issue a refund for the taxes paid.
The Taxpayer must accrue the tax on the dietary transfers and on the cost price of food items used in free meals. The tax should be remitted directly to the department on Form ST-9, Dealer's Retail Sales and Use Tax Return. If you need further assistance or have any questions, you may contact ***** at *****.
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 March 1994 through February 1997. 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 and provides food and beverages for employee functions and hospital-related seminars. In addition, the Taxpayer provides free meals to volunteer workers and nonemployees who attend hospital-sponsored training programs.
For accounting purposes, the Taxpayer uses dietary transfers to charge each department for food and beverages consumed by its staff. The auditor assessed the tax on the dietary transfers, as well as, the free meals. The tax was assessed in accordance with prior rulings of the department.
The Taxpayer disputes the tax and contends that the provision of food products and meals to hospital staff, volunteers, and other individuals by its food service division is not taxable because a sale, as defined under Code of Virginia Sec. 58.1-602, does not take place between the Taxpayer and the individuals consuming the food.
DETERMINATION
The department addressed a case with an almost identical set of facts in Public Document (P.D.) 95-70 (4/3/95). The ruling dealt with a nonprofit hospital that used its food service division to provide food products and catered meals to various hospital departments for staff meetings and special events. In addition, the taxpayer provided "pink slips' to employees and volunteers for free meals in the cafeteria.
The Tax Commissioner held the hospital's dietary transfer charges taxable because the food was not consumed by the hospital in the provision of its medical services. The charges were deemed sales, as defined under Code of Virginia Sec. 58.1602. In addition, the tax was upheld on the cost price of food items used in the "pink slip' meals as the meals were provided free of charge.
The ruling cites P.D. 84-227 (11/7/84) which addresses the application of the tax to meals and catering services provided by a nonprofit state university to various university departments. In P.D. 84-227, the Tax Commissioner determined that the government exemption did not apply because the meals were not consumed by the otherwise exempt university. As such, the charges were considered sales of tangible personal property subject to the tax.
The same rationale applies in this case. The Taxpayer does not consume the food products and meals in the provision of its medical services. While the Taxpayer may qualify for exemption under the government and nonprofit hospital exemptions, the exemptions are not applicable in this instance. Consistent with P.D. 95-70 and P.D. 84-227, the dietary transfers constitute sales, as defined in Code of Virginia Sec. 58.1-602. In addition, the tax applies to the cost price of the food items used in the free meals. Because the tax was properly assessed, there is no basis to issue a refund for the taxes paid.
The Taxpayer must accrue the tax on the dietary transfers and on the cost price of food items used in free meals. The tax should be remitted directly to the department on Form ST-9, Dealer's Retail Sales and Use Tax Return. If you need further assistance or have any questions, you may contact ***** at *****.
Rulings of the Tax Commissioner