Does a tax-exempt nonprofit senior-housing operator have to collect sales tax on the meal portion of its residents' monthly rent, even though the nonprofit itself is exempt from sales tax?

Plain-English summary

The Sunset Home of Utica is a not-for-profit corporation, exempt from federal income tax under IRC § 501(c)(3) and from New York sales tax on its own purchases under Tax Law § 1116(a)(4), with a century-plus mission of housing elderly and less-fortunate members of its community. Since 1984 it has run Sunset Wood Apartments, a 43-unit independent-living complex for residents 62 and older. Even though each unit has its own kitchen, the Home also operates a fully functional communal kitchen and dining room, because many residents can't reliably cook for themselves. Meals are served only to residents (and occasionally their guests) -- never to the general public or to staff. The Resident Agreement breaks the flat monthly fee ($969.70) into rent, housekeeping, and a specifically identified meal portion ($190.00), and residents owe that full amount whether or not they actually eat the provided meals. The Home doesn't get any government subsidy for the meal program. It asked whether it has to collect and remit sales tax on that meal portion.

New York generally taxes food and drink sold in or by "restaurants, taverns or other establishments." A tax-exempt charitable organization is normally exempt from sales tax on what it buys and sells -- but the law carves out a specific exception for food and drink sold in or by a restaurant, tavern, or similar establishment that an exempt organization operates: that food/drink sale stays taxable unless the purchaser is itself a tax-exempt organization. The Department found that the Home's dedicated dining room, serving pre-set, regularly scheduled meals as a defined component of the monthly charge, functions exactly like the "restaurant, tavern or other establishment" the regulations describe -- and it doesn't matter that access is restricted to residents rather than the general public, or that the facility sits inside an otherwise exempt organization's own building. Because individual residents paying for their own meals aren't themselves exempt organizations, the meal-portion charge doesn't get the benefit of the Home's own broader tax exemption, and the Home must collect and remit sales tax on the $190 monthly meal charge per resident.

What this means for you

Nonprofit senior-living, assisted-living, and continuing-care operators

Your organization's own tax-exempt status doesn't automatically make meals you serve to residents tax-exempt. If you run a dedicated dining facility serving regularly scheduled meals as a billed component of residents' charges, expect that meal portion to be taxable, regardless of your 501(c)(3)/1116(a) status -- the key question is whether the resident (the actual purchaser of the meal) is itself a tax-exempt organization, which an individual never is.

Charitable organizations running any kind of food-service operation for the people they serve

The "restaurant, tavern or other establishment" carve-out is broad and functional -- it doesn't require public access, a for-profit motive, or a stand-alone building. A "degree of regularity, frequency and continuity" in serving meals is enough to trigger it, even inside your own otherwise-exempt facility.

Accountants and tax professionals

This ruling is a clean illustration of the two-layer exemption analysis for charitable organizations under § 1116: the organization's general exemption (§ 1116(a)(4)) doesn't cover food/drink sales through its own restaurant-type operation (§ 1116(b)(2)) unless the specific purchaser is also an exempt organization -- individual residents, patrons, or members essentially never qualify, so meal charges billed to them stay taxable no matter how central the meal program is to the organization's charitable mission.

Common questions

Q: Does a nonprofit's overall tax-exempt status cover meals it serves to the people it houses or serves?
A: No -- there's a specific statutory carve-out that keeps food/drink sales through the organization's own restaurant-type operation taxable unless the purchaser (not the seller) is itself a tax-exempt organization.

Q: Does it matter that only residents (not the general public) can eat there?
A: No -- the regulations expressly say it's immaterial whether the restaurant/tavern/establishment is open to the public or restricted to members/residents of the organization.

Q: Would the analysis change if the facility received a government subsidy for the meals?
A: This ruling notes the absence of a government subsidy as one of the facts considered, but doesn't establish that a subsidy alone would change the outcome; that would need its own separate analysis.

Citations and references

Statutes and regulations:

• Tax Law § 1105(d)(i) (tax on food and drink sold by restaurants, taverns, or caterers)
• Tax Law § 1116(a)(4) (exemption for religious/charitable organizations)
• Tax Law § 1116(b)(2) (exemption doesn't cover food/drink sales by an exempt organization's restaurant unless the purchaser is also exempt)
• 20 NYCRR § 529.7(i)(3) (restaurant/tavern/establishment operated by exempt organization still taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(16)S
Sales Tax
March 12, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S980918A

On September 18, 1998, the Department of Taxation and Finance received a Petition for
Advisory Opinion from The Sunset Home of Utica, 118 Genesee Street, New Hartford, New York
13413. Petitioner, The Sunset Home of Utica, furnished additional information with respect to the
Petition on November 9, 1998.
The issue raised by Petitioner is whether Petitioner is exempt from collecting and remitting
sales tax in connection with the meals it prepares and provides to the residents of Sunset Wood
Apartments (hereinafter the "Project").
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a not-for-profit Corporation organized under the Laws of the State of New York,
with recognition of exemption from Federal Income Tax pursuant to Section 501(c)(3) of the Internal
Revenue Code and from sales tax on its purchases under Section 1116(a)(4) of the New York State
Tax Law.
Founded in 1882, Petitioner was organized exclusively to provide housing and other
humanitarian services to less fortunate members of the Utica community. Though Petitioner’s
various facilities and associations have improved greatly over the course of the past century, its
mission has remained relatively unchanged. Its mission is to provide housing and other related
services to elderly persons in the community, on a not-for-profit basis, such that Petitioner will
continue to provide services for residents of the community who are otherwise unable to provide for
themselves, to the extent of Petitioner’s resources.
Petitioner has undertaken several fund raising endeavors in order to offset annual operating
expenses, and to subsidize the delivery of services to its residents. These fund raising efforts have
led to Petitioner’s ability to fund development of the Project with equity in excess of $800,000,
thereby outfitting kitchen operations and reducing debt service on the Project through maturity of
the Project’s mortgaged indebtedness. As a result, Petitioner is able to offer its services to residents
at monthly rates which are considerably less than market rates.
Since 1984, Petitioner has operated the Project, a 43 unit residential housing complex for the
well elderly, specifically for persons 62 years of age or older. The Project has been developed to
provide housing accommodations, common areas for resident gatherings, a group library, and more.
Though each individual unit contains a private kitchen, the Project maintains its own fully

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TSB-A-99(16)S
Sales Tax
March 12, 1999

operational kitchen to provide meals for Project residents, insofar as many residents are incapable
of consistently preparing meals for themselves. The meals prepared and provided are done so for
the benefit of the residents only, and occasionally for resident guests. Petitioner’s services in this
regard are neither offered nor opened to the public.
Meals are provided for each resident, in a dining room, as a component of all services
offered to Project residents. The Resident Agreement, which each resident must enter into with
Petitioner, sets forth that a portion of the rental fee charged to residents is allocated to rent, a portion
is allocated to housekeeping and a portion is allocated to meals. The meal portion of the monthly
rental charge has been determined to be $190.00 per resident. Residents, however, must pay $969.70
per month whether or not they accept the meals provided. Meals are not provided for the staff. In
addition, Petitioner does not receive a government subsidy for providing the meals to residents.
Applicable Laws and Regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. – On and after June first, nineteen hundred seventy­
one, there is hereby imposed and there shall be paid a tax of four percent upon:
*

*

*

(d)(i) The receipts from every sale of beer, wine or other alcoholic beverages
or any other drink of any nature, or 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, or by caterers, including in the amount of such receipts any cover,
minimum, entertainment or other charge made to patrons or customers (except those
receipts taxed pursuant to subdivision (f) of this section):
(1) in all instances where the sale is for consumption on the premises where
sold . . .
Section 1116(a) of the Tax Law provides, in part:
Except as otherwise provided in this section, any sale or amusement charge
by or to any of the following or any use or occupancy by any of the following shall
not be subject to the sales and compensating use taxes imposed under this article:
*

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*

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Sales Tax
March 12, 1999

(4) Any corporation, association, trust, or community chest, fund or
foundation, organized and operated exclusively for religious, charitable . . .purposes
. . . no part of the net earnings of which inures to the benefit of any private
shareholder or individual . . .
Section 1116(b) of the Tax Law provides, in part:
Nothing in this section shall exempt:
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*

(2) sales of food or drink in or by a restaurant, tavern or other establishment
operated by an organization described in paragraph (1), paragraph (4), . . .of
subdivision (a) of this section . . .unless the purchaser is an organization exempt
under this section.
Section 529.7(i)(3) of the Sales and Use Tax Regulations provides:
Sales of food or drink in or by a restaurant, tavern, or other establishment
operated by an exempt organization are subject to the sales tax, other than the sales
exempt under section 1105(d)(ii) of the Tax Law described in subdivision (h) of
section 527.8 of this Title, or where the purchaser is a person or organization exempt
under this Part. A restaurant, tavern, or other establishment as used in this section
includes any dining room, bar and barroom, 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. It is immaterial whether or not the
restaurant, tavern, or other establishment is located on the premises of the exempt
organization or whether or not the use of such facilities is restricted to the members
of the organization. (See section 527.8 of this Title for the application of tax on sales
of food and drink.) . . .
Opinion
In this case, as a component of its exempt purposes of providing housing and other related
services to the elderly residents of the Project, Petitioner provides meals for the residents. The meal
portion of the monthly rental charge has been determined to be $190.00 per resident. Residents,
however, must pay $969.70 per month whether or not they accept the meals provided. Meals are not
provided for the staff. In addition, Petitioner does not receive a government subsidy for providing
the meals to residents.

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TSB-A-99(16)S
Sales Tax
March 12, 1999

In providing meals to the residents of the Project, Petitioner is operating a restaurant, tavern
or other establishment within the meaning of Section 1116(b)(2) of the Tax Law and Section
529.7(i)(3) of the Sales and Use Tax Regulations. Therefore, Petitioner is required to collect and
remit sales tax on the portion of the monthly rent paid by residents which is determined to be the cost
of the meals.

DATED: March 12, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.