Are ticket sales for a nonprofit's dining events subject to NY sales tax, and does calling the charge a 'Suggested Donation' change that?

Plain-English summary

The petitioner is a sales-tax-exempt cultural organization (Tax Law 1116(a)(4)) that holds many dining events -- a bi-weekly public luncheon (at least 26 a year), holiday and cultural dinners, dances, and a large weekend fundraiser drawing thousands at $5 admission. It asked (1) whether ticket proceeds are taxable, and (2) whether calling the charge a "Suggested Donation" changes the answer.

The Office of Counsel concluded:

• Frequent dining events = operating a restaurant. Sales tax is imposed on receipts from food or drink sold by restaurants, taverns, or other establishments (Tax Law 1105(d); 20 NYCRR 527.8). Even an exempt organization's food/drink sales are not exempt if it qualifies as such an establishment. The test is regularity, frequency, and continuity (20 NYCRR 529.7(i)(3)).
• Two-or-fewer dinners is the safe line. Per Publication 843 and the regulation's examples, an exempt organization holding no more than two dinners a year isn't considered to be operating a restaurant (Example 7), but a monthly supper is taxable (Example 12). Holding more than two events a year might make it a vendor, depending on regularity and continuity.
• This petitioner must collect tax. With at least 26 public luncheons plus numerous other events, the petitioner is operating a restaurant/other establishment under Tax Law 1116(b)(2) and must collect and remit sales tax on tickets to all food-and-drink events -- whether members-only or public.
• Volunteer-prepared food doesn't matter. It makes no difference whether employees or volunteer members prepare and donate the food and drink.
• "Suggested Donation" is not a magic label. The 1105(d) tax falls on the receipt for the food/drink. Calling it a "Suggested Donation" does not by itself make it nontaxable -- the Department looks at all facts (advertising, invoices, wording). If payment is mandatory to be served, it's taxable consideration (TSB-A-86(18)S). Only where the food is implicitly free and any donation is truly voluntary and donor-set is the amount exempt.

What this means for you

Nonprofits, clubs, churches, and cultural organizations

Your sales-tax exemption on purchases does not exempt you from collecting tax when you regularly sell meals. Count your food-and-drink events: more than two a year and you may be running a taxable "restaurant" in the eyes of the Department -- register for a Certificate of Authority and collect tax on tickets.

Don't paper over a mandatory charge

A "suggested donation" that you actually require before serving someone is a taxable charge. The label won't protect you; the substance (mandatory vs. genuinely voluntary) controls.

Common questions

Q: We're a tax-exempt organization -- why would we collect sales tax on dinners?
A: The exemption covers your purchases, not food-and-drink you sell. Hold dining events often enough and you're an "establishment" that must collect tax on the tickets.

Q: Our members donate and cook the food. Does that make tickets tax-free?
A: No. Once you're operating with regularity, who prepares or donates the food makes no difference.

Q: If we call admission a 'Suggested Donation,' is it exempt?
A: Not automatically. If people must pay to be served, it's taxable. Only a truly voluntary, donor-chosen donation for implicitly-free food is exempt.

Citations and references

• Tax Law section 1105(d) (sales tax on food and drink sold by restaurants and other establishments)
• Tax Law section 1116(a)(4) (exempt organizations)
• Tax Law section 1116(b)(2) (exempt organization operating a restaurant/establishment must collect tax)
• 20 NYCRR section 527.8 (sales of food and drink)
• 20 NYCRR section 529.7(i)(3) (restaurant, tavern or other establishment; regularity examples)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-14(4)S
Sales Tax
January 27, 2014

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S121211A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
the Petitioner’s name redacted (“Petitioner”), address redacted. Petitioner asks whether the
proceeds from the sale of tickets for dining events held by Petitioner are subject to sales tax.
Petitioner also asks whether the inclusion of the term "Suggested Donation" on advertising and
tickets for fundraising dinners affect the taxability of the charge for the event.
We conclude that the proceeds from the sale of tickets for dining events held by
Petitioner are subject to sales tax. We further conclude that the inclusion of the term “Suggested
Donation” on advertising and tickets for fundraising dinners does not, in and of itself, control
whether the charge for the event would be subject to sales tax.
Facts
Petitioner is an organization exempt from sales tax in New York under Tax Law §
1116(a)(4). Petitioner exists to sustain the social vitality and cultural vibrancy of Italian
Americans in its region. To sustain its facility and defray its expenses, Petitioner operates a
banquet facility on the premises in the large ballroom and adjoining café. It rents the facility to
outside users and collects and remits the required sales tax on charges for food and drink in
connection with those rentals.
There are many dining events offered only to Petitioner’s members and their families to
celebrate and preserve significant cultural and historic culinary traditions in the Italian
community. Some events are open to the public. These events take place at Petitioner’s facility.
Many of these events involve preparation and clean-up by volunteer members. Other events
involve paid caterers. Petitioner charges for admission to these events. The frequency and theme
of these events vary substantially throughout the year. Examples of events include: (1) a
bi-weekly luncheon open to the public; (2) “Let's Dance” (held twice a year) during which dinner
is served and a Disc Jockey or other performer is present for entertainment; (3) a celebration of
St. Francis (“Saint Francisco”) which generally is attended by between 100 and 175 members or
their family members, where a priest will attend and provide a benediction; (4) an annual
"Spring Fling" event; and (5) an annual "Valentine Dinner Dance" event. There are also other
annual events in support of particular cultural or religious purposes. Petitioner’s largest fund
raising event starts on a Friday and goes through Sunday, and is attended by approximately 4,500
to 5,000 people who pay an admission charge of $5.

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TSB-A-14(4)S
Sales Tax
January 27, 2014

Analysis
With some exceptions not relevant here, sales tax is imposed on the receipts from every
sale of food or drink sold in or by restaurants, taverns or other establishments, or by caterers.
See Tax Law Tax Law § 1105(d)(i)(1); 20 NYCRR § 527.8(a). Although most sales by entities
specified in Tax Law § 1106(a) (e.g., government entities, certain educational and charitable
institutions) are exempt from sales tax, sales by such entities of food or drink that are subject to
tax under § 1105(d) are not exempt.
A restaurant, tavern, or other establishment includes any dining room, bar and barroom,
cafeteria, snack bar, banquet room, or concession stand operated with a degree of regularity,
frequency and continuity, as well as any place where sales are made through a temporary
restaurant, tavern, or other establishment located on the same premises as persons required to
collect tax. See NYCRR § 529.7(i)(3). That regulation includes two examples (numbers 7 and
12) that are relevant here. Example 7 states the following: “[a]n exempt organization
occasionally holds a covered dish supper in its hall. The food is prepared and donated by the
organization’s members. The organization charges $2.00 for tickets to the supper. The $2.00
charge is not taxable.” Example 12 states “[a]n exempt organization holds a monthly supper.
The suppers are subject to tax.”
Petitioner asks whether the difference in taxability between examples 7 and 12 in the
Regulation is due to: (A) the frequency of the events; (B) the fact that in the exempt scenario the
members donate and cook the food; or (C) some other issue. Petitioner also asks whether the
inclusion of the term "Suggested Donation" on advertising and tickets for fundraising dinners
affect the taxability of the charge for the event.
Tax Department Publication 843 (December, 2009) gives several examples of what
constitutes a sale in or by a restaurant, tavern or other establishment. The first example states as
follows: An exempt organization occasionally holds dinners in its hall and charges $10 for
tickets. The organization holds no more than two dinners each year. Because of the infrequency
of the events, the exempt organization is not considered to be operating a restaurant, tavern or
other establishment, so the sales of the dinner tickets are exempt from sales tax.
Accordingly, holding two or fewer fund-raising dinners a year does not suffice to trigger
the “regularity, frequency and continuity” standard, and thus, will not require an exempt
organization such as Petitioner to collect sales and use tax. However, holding more than two
such events a year might cause an exempt organization to qualify as a vendor for sales tax
purposes and require it to collect tax, depending on the regularity and continuity with which the
events are held.
Petitioner holds, at a minimum, 26 luncheons open to the public per year, as well as
numerous other events for members or for members and the public. Due to the frequency,
regularity and continuity of its events, the Petitioner is operating a restaurant, tavern or other
establishment for purposes of Tax Law § 1116(b)(2) and, as such, must collect and remit sales

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TSB-A-14(4)S
Sales Tax
January 27, 2014

tax on the receipts from its sales of tickets to all events involving the sale of food and drink,
whether those events are open to members only or to the public. It makes no difference whether
Petitioner’s employees prepare the food and drink, or members donate the food and drink used
for the event.
Petitioner also has inquired whether admission based upon a “Suggested Donation” for an
event would result in a different conclusion. The § 1105(d) tax is imposed on the “receipts”
from the sale of food or drink by a tavern, restaurant or other establishment. Receipt is defined in
part as “the charge for any service taxable under [Tax Law § 1101(b)(3)].” The inclusion of the
term “Suggested Donation” does not, in and of itself, automatically lead to the conclusion that
the charge for the event would not be subject to sales tax. The Department would consider all
the facts and circumstances surrounding the event (such as advertising, invoices and whether
amounts are listed as suggested donations or actual payments) in order to determine if the
receipts were really suggested donations and not mandatory. See, e.g., TSB-A-86(18(S) (receipts
from voluntary donations for meals served in conjunction with certain religious activities found
to be subject to sales tax). If, based upon the facts, the payments were found to be mandatory
payments (i.e., an attendee would not be served food or drink without payment), the payments
would constitute consideration for food and drink and therefore would constitute receipts subject
to sales tax. In situations where receipt of the food and drink is implicitly free and any donation
is completely voluntary, with the amount left up to the donor, the donated amounts would be
exempt from sales tax.

DATED: January 27, 2014

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.