Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
550.0000 TAXABLE SALES OF FOOD PRODUCTS—Regulation 1603
(a) IN GENERAL—FACILITIES FOR CONSUMPTION
550.0275 Subsidies to Food Sellers. A management firm operates a cafeteria at a location identified as a maternity home. Its contract provides for reimbursement of its cost plus a management fee. Meals are furnished as follows:
(1) Meals are served to residents. No charge is made for the meals either by the firm or the maternity home.
(2) Meals are served to visitors, employees, or others. These people pay for their meals.
(3) Meals are served at "official business" meetings or conferences with a separate charge made to the maternity home. No charge is made to the staff attending these functions.
(4) Catering sales are made to outside groups who pay for these meals.
The furnishing of the meals to residents may be exempt if the maternity home qualifies as an "institution" under subdivision (m) of Regulation 1603. There is insufficient information available to determine if the maternity home qualifies as an "institution."
Apparently, the sales to visitors and the catering sales to outside entities covers the management firm's full cost for such sales. The "subsidy" is source of income for sales to the home's residents and for the meals served at staff meetings and conferences. Accordingly, it is part of the gross receipts from these sales by the caterer to the maternity home. This "subsidy" is distinguishable from the Szabo case because in Szabo, the sale was to the employee with a subsidy by the employer. Here, the sale is directly to the employer. There is no sale to the employee with a subsidy by the employer.
As indicated above, if the maternity home qualifies as an "institution," the sales amount allocable to meals served to the residents is exempt including the pro-rata share of the subsidy. 11/10/92.