Does a state prison have to collect sales tax on meals sold to employees through a non-profit inmate food-service training program?

Plain-English summary

Attica Correctional Facility runs a vocational training program in which inmates learn entry-level food-service skills. As part of it, a meal is prepared each day for 75 to 100 employees, supplemented by leased vending machines. The program is not operated for profit. The prison asked whether it must collect sales tax on the meals.

The Department held the meals are taxable — and so are vending sales over ten cents.

• Prepared food and drink are taxed. Section § 1105(d)(i) taxes receipts from "food and drink … sold in or by restaurants, taverns or other establishments." The daily employee meals fall within this tax.
• The vending-machine carve-out is tiny. Section § 1105(d)(ii)(C) excludes only food or drink sold through coin-operated vending machines at ten cents or less (where the vendor is primarily engaged in such sales and keeps satisfactory records). So the vending-machine receipts above ten cents are taxable.
• The government exemption doesn't reach restaurant food. While § 1116(a)(1) generally exempts sales made by New York State or its agencies and instrumentalities, that same statute makes the exemption expressly inapplicable to "sales of food or drink in or by a restaurant, tavern or other establishment." So the State-agency exemption does not cover these meals.
• Non-profit status is irrelevant. That the program isn't run for profit does not change the taxability of the food sales.

What this means for you

Selling prepared meals is taxable even for a government entity. The broad "restaurant, tavern or other establishment" language captures food operations run by agencies, schools, and institutions — not just commercial restaurants. The general government-sales exemption is carved back for restaurant food and drink.

Non-profit or training purpose doesn't exempt food sales. A charitable or educational motive behind a food operation doesn't remove the sales tax on the meals sold.

The vending exclusion is only for ten-cent-or-less items. Nearly all real-world vending sales exceed ten cents, so treat vending food and drink as taxable unless it truly fits that narrow rule.

Common questions

Q: We're a government agency selling meals to staff. Are those sales exempt?
A: No. The § 1116(a)(1) exemption for state-agency sales is expressly inapplicable to food or drink sold in or by a restaurant or other establishment, so the meals are taxable.

Q: Does running the food program at a loss or non-profit change anything?
A: No. The taxability of the meal sales doesn't depend on whether the program makes a profit.

Q: Are the vending-machine sales taxable too?
A: Yes, for anything over ten cents. Only vending food or drink sold at ten cents or less is excluded (§ 1105(d)(ii)(C)).

Citations and references

Statutes:

• Tax Law § 1105(d)(i) — tax on food and drink sold in restaurants, taverns, or other establishments
• Tax Law § 1105(d)(ii)(C) — exclusion for vending-machine food or drink sold at ten cents or less
• Tax Law § 1116(a)(1) — exemption for sales by New York State and its agencies, made inapplicable to restaurant food or drink

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_13s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(13)S
Sales Tax
March 29, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S811218B

On December 15, 1981 a Petition for Advisory Opinion was received from Attica
Correctional Facility, Box 149, Attica, New York 14011.
The issue raised is whether sales tax is required to be collected on the sale of meals to
employees thru a non-profit program conducted in a State institution.
Petitioner, Attica Correctional Facility, conducts a vocational training program in which
inmates are trained in entry level job skills necessary for placement in the food service industry. As
part of the program a meal is prepared each day for seventy-five to one hundred employees. This
service is supplemented by the use of leased vending machines. The program is not operated for
profit.
Section 1105 of the Tax Law imposes a sales tax on:
"(d)(i) The receipts from every sale of . . . food and drink of any nature or of food alone,
when sold in or by restaurants, taverns or other establishments in this state . . .
(ii) . . . [but excluding]
(C) food or drink sold through coin operated vending machines at ten cents or less, provided
the vendor is primarily engaged in making such sales and maintains records satisfactory to
the state tax commission."
Accordingly, sales tax is required to be collected on receipts from the sale of the meals in
question, as well as on the receipts from the vending machine sales which are in excess of ten cents.
While, the Tax Law provides for an exemption from sales tax generally applicable to sales made by
the State of New York, or any of its agencies or instrumentalities, (Tax Law, §1116(a)(1)), that
exemption is by the same statutory provision made expressly inapplicable to "sales of food or drink
in or by a restaurant, tavern or other establishment . . . ."

DATED: March 9, 1982

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR