Do South Carolina students pay sales tax when they use their meal-plan 'flex dollars' to buy food on campus?

Plain-English summary

A food-service company runs the dining operations at a South Carolina university as the university's agent. Students buy meal plans directly from the university at the start of each semester. Those plans have two parts: a set number of meals, and "flex dollars" — a balance that can be redeemed for meals and other food items at any on-campus dining facility via a loaded swipe card. The company asked whether food bought with flex dollars is subject to sales tax.

The Department said no — flex-dollar food purchases are not taxable retail sales. Here's the logic:

• South Carolina taxes retail sales of tangible personal property, and food is tangible personal property [§ 12-36-910; § 12-36-60].
• But under § 12-36-110(1)(h) and Regulation 117-305.1, when meals are furnished to students under a board plan, the educational institution (or its agent) is treated as the user/consumer of the food — so sales of prepared meals to students under a board plan are NOT retail sales and aren't taxed to the student. What is a retail sale is the unprepared food sold to the institution/agent for use in the board plan.
• Flex dollars work just like a meal plan: bought from the university up front, drawn down by swiping. Because they function the same way, meals and food bought with flex dollars are treated as part of the board plan and are not taxable retail sales.

Two important edges:

• Non-food purchases with flex dollars ARE taxable. If a student uses flex dollars to buy something other than meals/food, that's a retail sale of tangible personal property subject to state and local sales tax.
• "Withdrawal for use" still applies. Because the provider makes both taxable retail sales (non-board-plan purchases) and non-retail board-plan servings from the same stock, it buys all its unprepared food tax-free at wholesale (resale certificate), then reports retail sales on gross proceeds and board-plan withdrawals for use at the food's fair market value [Reg 117-305.3]. So the food used for board-plan meals is still taxed — as a withdrawal — it's just not billed to the student.

What this means for you

Campus dining contractors and colleges/universities

Treat flex dollars like the rest of the board plan: don't charge students sales tax on food they buy with flex dollars. Do charge sales tax when flex dollars (or any payment) are used for non-food items, and when meals are sold outside a board plan (cash/card at snack bars, canteens, etc.). Keep your wholesale-purchase-and-withdrawal accounting clean under Reg 117-305.3: buy unprepared food tax-free for resale, then remit tax on retail sales (gross proceeds) and on board-plan withdrawals for use at fair market value.

Accountants and tax professionals

The board-plan exclusion hinges on the institution/agent being the statutory user/consumer under § 12-36-110(1)(h), which flips the taxable event from the student-facing meal to the upstream food purchase/withdrawal. Flex dollars ride along with the board plan because they're prepaid and drawn down the same way. Watch the two carve-outs — non-food flex spending is taxable, and the withdrawal-for-use measure (FMV) is the mechanism that actually taxes the board-plan food. This is a PLR, binding only on the requesting taxpayer.

Common questions

Q: Do students pay sales tax on food bought with flex dollars?
A: No. Flex dollars are treated as part of the board plan, so food and meals bought with them are not taxable retail sales.

Q: What if a student uses flex dollars for something that isn't food?
A: Then it's a taxable retail sale of tangible personal property, subject to state and local sales tax.

Q: If students aren't charged tax, is the food untaxed entirely?
A: No. The dining provider buys unprepared food tax-free at wholesale and then pays tax on board-plan food as a "withdrawal for use," measured by the food's fair market value — the tax just isn't billed to the student.

Q: Does this apply to meals bought with cash at a campus snack bar?
A: No. Meals sold outside a board plan (paid by cash, card, etc.) are ordinary taxable retail sales.

Citations and references

Statutes:

• S.C. Code Ann. § 12-36-910 — 6% sales tax on gross proceeds of retail sales
• S.C. Code Ann. § 12-36-110(1)(h) — meals/unprepared food furnished to educational institutions; the institution is the user/consumer
• S.C. Code Ann. § 12-36-60 — definition of tangible personal property

Regulations:

• S.C. Regulation 117-305.1 — distinguishes board plans (not taxable to the student) from individual campus sales (taxable)
• S.C. Regulation 117-305.3 — buy all food at wholesale; report retail sales on gross proceeds and withdrawals for use at fair market value

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR24-3.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE

300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC PRIVATE LETTER RULING #24-3
SUBJECT:

Flex Dollars – Educational Meal Plans
(Sales Tax)

REFERENCES:

S.C. Code Ann. § 12-36-60
S.C. Code Ann. § 12-36-110
S.C. Code Ann. § 12-36-910
SC Regulation 117-305

AUTHORITY:

S.C. Code Ann. § 12-4-320
S.C. Code Ann. § 1-23-10(4)
S.C. Revenue Procedure #09-3

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific taxpayer
by the Department to apply principles of law to a specific set of facts or a
particular tax situation. It is the Department’s opinion limited to the specific
facts set forth by the taxpayer. Moreover, it is binding on agency personnel
only with respect to the taxpayer and only until superseded or modified by a
change in statute, regulation, court decision, or another Departmental
advisory opinion, provided the presentations made in the request reflect an
accurate statement of the material facts.

QUESTIONS:
Are meals or other food items sold to or purchased by students redeeming board plan “flex dollars”
at an on-campus food service facility subject to sales tax?
CONCLUSION:
“Flex dollars” are options offered by educational institutions as part of the board plans students may
select at the beginning of the term for meals or other food items provided by on-campus food
service facilities. Therefore, sales of prepared meals and other food items to students using “flex
dollars” are not retail sales and are not subject to the state sales tax.

FACTS:
The University owns various on-campus food service facilities including traditional residence hall
dining facilities, coffee shops, quick casual restaurants, and even “branded” facilities. The
Taxpayer, a food service company, has contracted to be an agent of a university located in South
Carolina (the “University”) and provide food service management. According to its contract, the
Taxpayer will provide the following services: 1) engage the University community with regard to
on-campus dining options; 2) offer wellness, healthy-eating and nutritional programs for the school
community; 3) menu planning; 4) purchase all food inventory (which the Taxpayer currently
purchases tax free with the use of a resale certificate); and 5) prepare and service all meals and other
food and beverages at the University’s on-campus food service facilities. Additionally, the
Taxpayer partners with the University to determine the different “branded” facilities that will
operate on-campus. Upon agreement, the Taxpayer will obtain the franchise license(s) for the
“branded” facilities located on the University’s campus.
At the start of each semester, students choose from a variety of meal plan options and purchase the
meal plans directly from the University. Should any sales tax become due on any portion of the
meal plan charges, the tax is billed directly to the student by the University. The meal plans have
two components: 1) a specified number of meals to which a student is entitled per semester; and 2)
“flex dollars” that can be redeemed for meals and other food items at any on-campus food service
facility.
The University then issues a “swipe card” loaded with each student’s associated meal plan and flex
dollars. The card, which is for a student’s sole use, can be used to purchase meals and other food
items at on-campus food service facilities. Certain on-campus food service facilities only accept
flex dollars. When the card is “swiped”, the University’s system automatically reduces the
appropriate number of meals and/or flex dollars from the corresponding student’s plan.
Meals may also be sold to individuals, including students, using traditional payment methods (i.e.,
cash, debit card, credit card, etc.). The Taxpayer does not charge sales tax on a student’s use of meal
plans. However, the Taxpayer charges sales tax on non-meal plan purchases. As the Taxpayer
makes both retail sales and withdraws for use from the same stock of goods, the Taxpayer asserts
that it conforms to the requirements of S.C. Regulation 117-305.3 and purchases its food inventory
tax free as a wholesale purchase and then reports the retail sales based on the gross proceeds of
sales and withdrawals for use based on the property’s fair market value.
LAW AND ANALYSIS:
Section 12-36-910(A) states:
A sales tax, equal to [six][1] percent of the gross proceeds of sales, is imposed upon every
person engaged or continuing within this State in the business of selling tangible personal
property at retail.
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S.C. Code Ann. § 12-36-1110 increased the sales and use tax rate by 1% beginning June 1, 2007.

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Section 12-36-60 defines the term “tangible personal property” to mean “… personal property
which may be seen, weighed, measured, felt, touched, or which is in any other manner perceptible
to the senses …” Finally, Section 12-36-110(1)(h) defines “sale at retail” and “retail sale” to include
“…all sales of tangible personal property except those defined as wholesale sales … (1) The term
includes …. (h) sales of prepared meals, or unprepared food products used to prepare meals, to …
educational institutions ... if furnished as part of the service rendered. These institutions and
companies are deemed to be the users or consumers of the property”.
Therefore, sales of unprepared food products used to prepare meals to educational institutions are
retail sales of tangible personal property subject to state sales tax of six percent.
Regulation 117-305.1 provides additional guidance on board plans provided by educational
institutions. The guidance distinguishes between board plans (plans for which students purchase all
their meals for an entire semester or year at the beginning of the term for meals provided to students
in a cafeteria) and meals or food that may be purchased by students or others on an individual basis
at canteens, snack bars, and other places around campus. The regulation provides that sales of
unprepared food products to an educational institution, or its agent, for use in furnishing meals
under a board plan are retail sales subject to the sales tax; and sales of prepared meals to students
under a board plan are not retail sales and are not subject to the state sales tax.
However, sales by an educational institution, or its agents, of meals and other food items (including
the purchase of tickets that entitles the purchaser to several meals), other than those furnished under
a board plan, are retail sales subject to the state sales tax. SC Regulation 117-305.1. Instances in
which an educational institution, or its agent, make both retail sales (sales other than those under a
board plan) and withdrawing for use from the same stock of goods (sales under a board plan), must
purchase at wholesale all of the unprepared food products sold or used. The educational institution,
or its agent, must then report retail sales based on gross proceeds of sales and withdrawals for use
based on the property’s fair market value. SC Regulation 117-305.3.
In the question at hand, the Department must consider whether the use of flex dollars to purchase
meals and other food items are considered part of a board plan pursuant to Section 12-36-110(1)(h)
and SC Regulation 117-305.1.
Like meal plans, students purchase flex dollars from the University at the beginning of the term.
Similarly, the number of flex dollars are reduced by the amount students purchase at an on-campus
dining facility using swipe cards. Therefore, flex dollars are used in the same manner as meal plans
and simply provide a more flexible option for students to purchase meals and other food items. As
such, meals and other food items sold to or purchased by students redeeming meal plan flex dollars
are not retail sales of tangible personal property subject to state and local sales tax. However, if flex
dollars are used to purchase things other than meals and other food items, the sales are retail sales of
tangible personal property subject to state and local sales tax. In each instance, the withdrawal of
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unprepared food purchased at wholesale constitutes a retail sale and is subject to the tax based on
the unprepared food’s fair market value.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
August 5
, 2024
Columbia, South Carolina
CAVEAT: This advisory opinion is issued to the taxpayer requesting it on the assumption that
the taxpayer’s facts and circumstances, as stated, are correct. If the facts and circumstances
given are not correct, or if they change, then the taxpayer requesting the advisory opinion
may not rely on it. If the taxpayer relies on this advisory opinion, and the Department
discovers, upon examination, that the facts and circumstances are different in any material
respect from the facts and circumstances given in this advisory opinion, then the advisory
opinion will not afford the taxpayer any protection. It should be noted that subsequent to the
publication of this advisory opinion, changes in a statute, a regulation, or case law could void
the advisory opinion.

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