A campus dining contractor buys student meals from an off-campus hotel housing overflow students — does it owe sales tax on those purchases, and can it recover the tax?

Plain-English summary

A company that runs the dining operations at a public college provides meals to students on the college's meal plan (billed to students by the college, and not taxed when served on campus). When enrollment outgrew campus housing, the college put some students up in a local hotel — and the hotel also fed those students under the meal plan. The hotel billed the dining contractor for those meals, including sales tax. The contractor asked whether it really owed tax on those purchases.

The answer: yes, the contractor owes tax on its purchases from the hotel — but it can get that tax back.

• § 1105(d) taxes sales of food and drink by restaurants and other establishments. There's an exclusion in § 1105(d)(ii)(B) for meals sold to enrolled students on college premises under a no-cash contractual meal plan.
• But that exclusion covers sales to the students — not the contractor's purchase from the hotel. So the hotel's charges to the contractor are taxable under § 1105(d).
• Because the contractor is effectively reselling those meals to students under the meal plan, it may take a refund or credit on its sales tax return for the tax it paid the hotel — the standard resale credit (20 NYCRR 527.8(i)).

What this means for you

A student-meal exclusion doesn't automatically flow up the supply chain. The break for on-campus student meals applies to the sale to the student. When a dining contractor buys prepared meals from a third party (here, a hotel) to fulfill that meal plan, that mid-chain purchase is a taxable sale of food — even though the final meal to the student isn't taxed.

Use the resale credit instead of fighting the tax. New York's fix is the resale mechanism: pay the tax on the purchase, then claim a credit or refund because you're reselling the food to the students under the plan. Keep clean records tying the hotel's invoices (and the tax paid) to the meals provided under the college meal plan.

This is a general resale-of-food pattern. Any operator who buys prepared food and resells it can generally recover the tax paid on the purchase through the resale credit, rather than being taxed twice.

Common questions

Q: Why isn't the contractor's purchase covered by the student-meal exclusion?
A: Because § 1105(d)(ii)(B) excludes sales made to the students. The contractor's purchase from the hotel is a separate, taxable sale of food to the contractor.

Q: So does the contractor actually bear the tax?
A: No, not ultimately. It pays the hotel's tax, then claims a refund or credit on its return because it is reselling the meals to students under the meal plan.

Q: Are the meals served to the students taxable?
A: Meals provided to enrolled students on the college's plan qualify for the § 1105(d)(ii)(B) exclusion to the extent the plan and receipts meet its conditions.

Citations and references

Statutes and regulations:

• Tax Law § 1105(d) — taxes sales of food and drink by restaurants, taverns, other establishments, and caterers
• Tax Law § 1105(d)(ii)(B) — excludes food and drink sold to enrolled students on college premises under a no-cash contractual meal plan
• 20 NYCRR 527.8(i) — allows a credit or refund for tax paid on food and drink purchased for resale

Related Department opinions cited: TSB-A-98(21)S (UM Enterprises Ltd.) and TSB-A-98(46)S (Klondike Cruises, Inc.) — resale credit for purchased food and drink.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(15)S
Sales Tax
April 8, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S091217A

Petitioner, name and address redacted which has a contract with a public college to provide
meals to the college’s students pursuant to a student meal plan offered by the college, asks whether its
payments to a third party for meals provided to students temporarily lodged by the college in offcampus housing are subject to sales tax.
We conclude that Petitioner’s purchases of meals provided by the off-campus third party
provider are subject to sales tax, but Petitioner is eligible for a refund or credit of the tax paid.
Facts
Petitioner provides food and facilities management services to institutions. In particular,
Petitioner provides food services to educational institutions including colleges and universities.
Contracts between Petitioner and the college or university generally provide for student meals and
cafeteria services.
Petitioner manages the food service operations at a public college in New York State. Under
the terms of the contract, Petitioner provides meals to students who participate in the college’s meal
plan programs at cafeterias on the college’s campus. The meal plans are billed to the students by the
college.
Petitioner does not charge sales tax on the meals provided to the students on campus pursuant
to its contract with the college.
Enrollment at the college increased to a point beyond the physical capacity of the college to
house all the students who desired on-campus housing. To provide for the overflow, the college has
arranged for a private hotel in the area to temporarily house some students until space becomes
available to provide on campus housing for the students. The agreement is between the college and
the hotel and the college compensates the hotel for the rooms occupied.
The hotel also provides meals to the students pursuant to the meal plan program of the college.
Petitioner is invoiced by the hotel for the cost of the meals, including sales tax. The hotel bills
Petitioner for the specific number of meals it provides the students. Petitioner recoups its expenses for
these meals as part of its contract with the college to provide meals to students participating in the
college meal plan.
The students temporarily housed at the hotel who participate in the college’s meal program,
when eating breakfast at the hotel, participate in the hotel’s continental breakfast along with the hotel’s
other guests. For other meals, a specific area of the hotel’s dining room has been set aside for the
student’s use. There is a specific student menu for these meals. The meals provided are comparable

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TSB-A-10(15)S
Sales Tax
April 8, 2010

to the meals provided in the on-campus facilities by Petitioner. Students at the hotel evidence their
entitlement to receive food pursuant to the college meal program by swiping their meal card; this is the
same process they would use if they were receiving food pursuant to the college meal program at the
on-campus cafeterias. The meal card used by the students at the hotel is the same as is used oncampus and the students may use their cards to obtain meals on-campus. However, students not
temporarily housed in the hotel are not authorized to use their meal cards to obtain food at the student
area of the hotel’s dining facility.
Analysis
Sales tax is imposed on sales of food and drink when sold in or by restaurants, taverns or other
establishments and by caterers. (See Tax Law Section 1105(d).) An exclusion from the tax applies to
food or drink (excluding alcoholic beverages) sold at a restaurant, tavern or other establishment
located on the premises of a college or university to a student enrolled therein under a contractual
arrangement whereby the student does not pay cash at the time he or she is served. (See Tax Law
Section 1105(d)(ii)(B).)
The students at issue here contracted with the college for room (lodging) and board (meal
plan). Their meal plan entitles them to receive food and drink at facilities located on the college
premises the same as all other students enrolled in the meal program. Due to oversubscription to on
campus housing, the college has made temporary arrangements to house the students at a local hotel.
Payments by these students to the college for their participation in the college meal program are
excluded from the sales tax to the extent the college’s plan, and the receipts paid therefor otherwise
qualify for the exclusion pursuant to the provisions of section 1105(d)(ii)(B) of the Tax Law.
Petitioner, pursuant to its contract with the college to provide meals to students under the college’s
meal plan program, has made arrangements for these students to receive meals at the hotel when the
students have not otherwise availed themselves of the opportunity under the meal plan to receive
meals at on-campus facilities.
The exclusion from sales tax in Tax Law section 1105(d)(ii)(B) applies to sales of food or
drink made to students. In the present case, Petitioner is making purchases from the hotel of food and
drink that are served to the students. Accordingly, the payments by Petitioner to the hotel for
Petitioner’s purchase of food and drink are subject to the tax imposed pursuant to section 1105(d) of
the Tax Law.
Section 1105(d) of the Tax Law does not provide for an exclusion from tax for sales of food
and drink for resale. Thus, in general, all receipts from the sale of food and drink are subject to sales
tax. However, if food and drink are purchased for resale, the tax paid by the seller may be taken as a
credit against the tax which the seller is required to collect and remit on the subsequent sale. The food
and drink Petitioner is purchasing from the hotel are being provided to the students pursuant to the
students’ participation in the college’s meal plan program and Petitioner’s obligations under its
contract with the school to provide meals to the participating students. Accordingly, Petitioner may
take a refund or credit on its sales tax return for the tax it pays to the hotel on such prepared food and
drink. See UM Enterprises Ltd, Adv Op Comm T&F, March 24, 1998, TSB-A-98(21)S and Klondike

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TSB-A-10(15)S
Sales Tax
April 8, 2010

Cruises, Inc, Adv Op Comm T&F, July 29 1998 ,TSB-A-98(46)S. See also Sales and Use Tax
Regulations section 527.8(i).

DATED: April 8, 2010

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel
An Advisory Opinion is issued at the request of a person or entity. It is limited
to the facts set forth therein and is binding on the Department only with
respect to the person or entity to whom it is issued and only if the person or
entity fully and accurately describes all relevant facts. An Advisory Opinion
is based on the law, regulations, and Department policies in effect as of the
date the Opinion is issued or for the specific time period at issue in the
Opinion.