If a food-service company operates a school's cafeteria, vending, and catering as the school's agent, are its food purchases and meal sales exempt from Missouri sales tax?

Plain-English summary

The Missouri Department of Revenue ruled that a food-service management company acting as agent for several tax-exempt religious, charitable, and/or educational organizations can make its food and supply purchases, and its meal sales, exempt from Missouri sales tax -- as long as the organizations hold valid Missouri exemption letters.

The company operates each organization's food service program under a written agreement: normal school cafeteria service, vending machines on the organization's premises (accessible only to students, staff, and other invitees), and special-occasion catering. The company collects money from students and staff and deposits it into a bank account held in the organization's name, with the company listed only as agent. When the company orders food and supplies from purveyors, those purveyors sell, invoice, deliver, and convey title directly to each organization -- not to the company -- so the organization (not the company) bears any loss. The company's fee varies by contract: sometimes it's whatever remains after paying allowable expenses, sometimes it's that plus a specified amount or percentage of sales.

The Department found two things exempt under this structure:

1. Purchases of food and supplies the company makes for the organizations are exempt from sales tax, citing Section 144.030.2(19), RSMo (exemption for sales by/to religious and charitable organizations in their religious, charitable, or educational functions, and for sales by/to public elementary and secondary schools), Section 144.030.2(20), RSMo (exemption for sales by/to not-for-profit civic, social, service, or fraternal organizations), and 12 CSR 10-110.955(3)(D) (same exemption, plus a reciprocal exemption for out-of-state organizations exempt from similar tax in their own state). Because the company is the organizations' agent, and vendors invoice, deliver, and title the goods directly to the organizations, the company may buy exempt on the organizations' behalf. The Department cited Becker Electric Co. v. Director of Revenue, 749 S.W.2d 403 (Mo. banc 1988).
2. Meal sales the company makes on behalf of the organizations are likewise exempt, for the same reasons.

What this means for you

Food-service management companies

If you operate a cafeteria, vending, or catering program for a tax-exempt organization as its agent -- with the organization's name on the bank account, and vendors invoicing and titling goods directly to the organization rather than to you -- your purchases and sales made on the organization's behalf can be exempt from Missouri sales tax, provided the organization holds a current Missouri exemption letter. Confirm your contracts and vendor invoicing actually reflect a true agency relationship before relying on this treatment.

Schools, religious organizations, and charities

If you contract with an outside food-service company to run your cafeteria, vending, or catering, make sure your exemption letter with Missouri is current, and that your contract structures the company as your agent (money flows through an account in your name, and vendors bill and title goods to you). That structure is what let the Department treat the arrangement as tax-exempt in this ruling.

Accountants and tax professionals

The exemption here rests on the agency structure, not merely on the fact that the ultimate customer is tax-exempt. Key facts the Department relied on: the bank account is titled in the organization's name (company shown only as agent), and purveyors invoice, deliver, and convey title directly to the organization rather than to the food-service company. If a client's arrangement instead routes title or invoicing through the management company itself, this ruling's reasoning may not apply.

Common questions

Q: Does every school food-service contractor get this exemption automatically?
A: No. This ruling depends on specific facts: the organization holds a valid Missouri exemption letter, the company acts strictly as the organization's agent, funds are deposited into an account in the organization's name, and vendors invoice, deliver, and title the food and supplies directly to the organization.

Q: What if the food-service company takes title to the food and supplies itself before serving them?
A: That would be a different fact pattern than the one ruled on here, where purveyors convey title directly to the organizations, and any loss is the organization's responsibility, not the company's.

Q: Can another food-service company rely on this ruling for its own contracts?
A: Not automatically. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years, and only while the facts and law don't change. Another company should confirm its own contracts and invoicing match these facts and consult a tax professional.

Citations and references

Statutes and cases:

• Section 144.030.2(19), RSMo (exemption for sales by/to religious and charitable organizations in their religious, charitable, or educational functions, and sales by/to public elementary and secondary schools in their educational functions)
• Section 144.030.2(20), RSMo (exemption for sales by/to not-for-profit civic, social, service, or fraternal organizations in their civic or charitable functions)
• 12 CSR 10-110.955(3)(D) (exemption for sales to/by religious and charitable organizations, including a reciprocal exemption for similarly exempt out-of-state organizations)
• Becker Electric Co. v. Director of Revenue, 749 S.W.2d 403 (Mo. banc 1988)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8291

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated January 24, 2024.

The facts as presented in your letter ruling request are summarized as follows:

Applicant has entered into written agreements with several organizations that hold exemption letters with Missouri as religious, charitable and/or educational institutions. Applicant works with the organizations to operate the food service programs, consisting of normal school cafeteria service, snacks and beverages dispensed from vending machines on the organizations' premises that are accessible only by students, staff and other school invitees, and special occasion function food service.

Applicant, as agent for each organization, collects monies paid by students and staff at the time of purchase of the meals and Applicant and the organizations share responsibility for determining the food to be served and the food and drink prices. The Applicant, as agent, deposits all monies collected from operation of the food service program into a separate bank account in the Organizations' name with Applicant shown as agent for the organization.

Applicant, as agent, orders from purveyors' foodstuffs and supplies for the Organization's food service program. The purveyors thereafter sell, invoice, deliver and convey title to such food stuffs and supplies directly to each organization. Since each organization purchases, holds legal title and physical possession and control of food stuffs, supplies and materials, any loss that may occur due to an event at the school would be the sole responsibility of the organization.

The fee structure may vary. In some agreements Applicant's fee is the sum remaining after paying all allowable expenses. In other agreements Applicant's fee is the sum remaining after paying all allowable expenses and a specified amount or a percentage of sales to the organization.

ISSUE 1:

Are Applicant's purchases of food and supplies necessary for the provision of meals for the organizations exempt from sales tax?

RESPONSE 1:

Yes. Applicant's purchases of food and supplies necessary for the provision of meals for the organizations are exempt from sales tax, so long as Applicants' organizations have a relevant exemption letter.

Section 144.030.2(19), RSMo, provides:

All sales made by or to religious and charitable organizations and institutions in their religious, charitable or educational functions and activities and all sales made by or to all elementary and secondary schools operated at public expense in their educational functions and activities.

Section 144.030.2(20), RSMo, provides an exemption for:

...all sales made by or to not-for-profit civic, social, service, or fraternal organizations...in their civic or chartable functions and activities...

Missouri Code of State Regulations CSR 10-110.955(3)(D) provides:

All sales made to or by any religious and charitable organizations and institutions in their religious, charitable or educational functions and activities are exempt from Tax. All sales by the same type of organizations and institutions of other states are exempt from tax providing such organizations and institutions are exempt from a similar tax in their own states.

Section 144.030.2(19), RSMo, provides an exemption for sales made to religious and charitable organizations in their religious, charitable, or educational functions and elementary and secondary schools. Applicant provides food services to various exempt organizations. According to the contractual agreements with the schools, Applicant is an agent acting on behalf of the schools. The food and supplies vendors invoice, deliver, and convey title to the food and supplies directly to the organizations. Based upon the contracts with the organizations, Applicant, as an agent, may purchase the food and supplies necessary for the provision of meals to the organizations exempt from Missouri sales tax. See Becker Electric Co. v. Director of Revenue , 749 S.W.2d 403 (Mo. banc 1988).

ISSUE 2:

Are Applicant's sales of their meals on behalf of the organizations exempt from sales tax?

RESPONSE 2:

Yes. Applicant's sales of their meals on behalf of the organizations are exempt from sales tax, so long as the organizations have an exemption letter.

See Response 1.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Associate Counsel J. Ross Shelton General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford

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