How should a cash-basis university allocate a partial student payment between taxable meals and nontaxable dorm rent?

Plain-English summary

A university separately billed students for taxable meals and nontaxable dormitory rent and reported sales tax on the cash basis. When a student made only a partial delinquent payment, Texas required the school to split that payment using the ratio of taxable meal charges to the total pretax bill.

The letter's example used $100 of meals and $400 of lodging, so meals were 20% of the $500 pretax balance. A $400 payment therefore included $80 of taxable receipts. The university could not simply choose to apply the payment entirely to one category.

What this means for you

Universities and residential schools

When taxable and nontaxable charges are separately stated but a customer pays only part of the combined bill, preserve a consistent proportional allocation. The calculation in this letter excludes sales tax from the denominator.

Accountants using cash-basis reporting

Apply the taxable percentage to the cash actually received. Keep the underlying separately stated billing and the allocation calculation in your records.

Common questions

Q: Can the university apply a payment first to dorm rent or first to meals?
A: Not under this letter. Texas required percentage allocation between the taxable and nontaxable charges.

Q: What percentage is taxable?
A: Divide taxable charges by all pretax charges, then apply that percentage to the payment received.

Q: Does the letter cite a particular statute or rule?
A: No. It states the required allocation method without identifying a provision by number.

Q: Can I rely on this 1988 example today?
A: Treat it as historical guidance. The letter was based on the university's stated billing and cash-basis facts.

Citations and references

The letter requires proportional allocation but does not cite a specific Tax Code section or Comptroller rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8806L0893C14

Original ruling text

June 28, 1988

Dear ***:

Thank you for your recent letter regarding the taxability of meals served
by the university.

In our telephone conversation, you stated that students pay for dorm fees
(room rent) and meals. These charges are separately stated on the billing to
the student. You also stated that your sales tax is reported on the cash
basis of accounting.

Your specific question related to how to apply delinquent payments received
from students who do not pay the entire charge in a timely manner. Should
the payments received be considered as payment on taxable meals and the
remainder applied to room rents? Can the payment be applied to any portion
of the debt at the university's option?

Because the charges are separately stated on the billing, it is possible
to allocate the payment received using a percentage of taxable charges (meals)
to total charges excluding tax. This agency has required the percentage method
of allocating taxable to nontaxable receipts.

Example:
Meals $100 Tax $7 $107
Lodging $400 $400 $507 $100 .. $500 = 20%

If student pays $400, then $400 x .20 = $80. $80 is taxable.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may write at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence