Are food-service management services at a for-profit assisted living facility taxable, and do the elderly-center or meals exemptions apply?

Plain-English summary

A company contracted to run the food-service operation at a for-profit assisted living facility for the elderly — supplying food, dietary supplies, linens, uniforms, labor, and management to prepare three meals a day. The facility was not a nonprofit hospital, nursing home, rest home, or residential care home. The company asked DRS three questions about sales tax.

DRS ruled:

1. Managing the food service = taxable business management service. "Business management services" are taxable under Conn. Gen. Stat. § 12-407(2)(i)(J). By regulation (Conn. Agencies Regs. § 12-407(2)(i)(J)-1), such services are taxable when they relate to the recipient's "core business activities." Because an assisted living facility's core business is caring for its residents, and providing meals is directly related to that, managing the food-service operation is a taxable business management service — the same conclusion DRS reached for nutrition-management services at a nursing home in Ruling No. 93-5.

2. The elderly-center exemption (§ 12-412(35)) does NOT apply. Section 12-412(35) exempts sales of property and services to a "center of service for elderly persons." But an assisted living facility (a residential community providing nursing and daily-living support — meals, laundry, housekeeping) is a different establishment from a "senior center" under Conn. Gen. Stat. § 17b-425 (which provides recreational, cultural, and counseling services but no housing, nursing, or daily-living assistance). So the management contract isn't exempt under § 12-412(35).

3. Direct meal sales to residents ARE exempt (§ 12-412(9)). Section 12-412(9) (as amended by 2000 Conn. Pub. Acts 174, § 9) exempts sales of food products, meals, candy, confectionery, and beverages sold to patients, residents, or care recipients of an assisted living facility. So any charges the company makes for direct sales of those items to the residents are exempt.

The upshot: the management fee charged to the facility is taxable, but food sold directly to the residents is exempt.

What this means for you

Food-service and facility-management contractors

If you manage a care facility's food operation, expect that management charge to the facility to be a taxable business management service — running a function tied to the facility's core business (resident care) is what triggers tax, not the food itself. Separate out direct sales of meals/food to residents, which ride the § 12-412(9) exemption.

Assisted living operators

Don't assume the "center of service for elderly persons" exemption covers your facility — DRS distinguishes an assisted living facility from a senior center (§ 17b-425). Meals and food sold to your residents are exempt under § 12-412(9), but a third party's management of your food operation is a taxable service to you.

Accountants and tax professionals

Two distinct transactions: (a) the contractor's business management service to the facility (taxable, § 12-407(2)(i)(J), core-business-activities test per the regulation and Ruling 93-5); and (b) direct food/meal sales to residents (exempt, § 12-412(9)). The § 12-412(35) elderly-center exemption is establishment-specific and doesn't reach assisted living facilities.

Common questions

Q: Is managing a care facility's meal program taxable in Connecticut?
A: Yes. It's a taxable business management service under § 12-407(2)(i)(J) because feeding residents relates to the facility's core business.

Q: Are the meals themselves taxable?
A: Not when sold directly to the facility's patients, residents, or care recipients — those food/meal sales are exempt under § 12-412(9).

Q: Doesn't the exemption for services to elderly-service centers apply?
A: No. An assisted living facility isn't a "senior center" (§ 17b-425), so the § 12-412(35) exemption doesn't apply to the management contract.

Q: Would a nonprofit hospital or nursing home change the analysis?
A: This ruling addressed a for-profit assisted living facility. Different facility types (e.g., nonprofit hospitals, nursing homes) can carry their own exemptions, so the analysis could differ.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-407(2)(i)(J) (business management services are a taxable enumerated service)
• Conn. Gen. Stat. § 12-412(35) (exemption for sales of services and tangible personal property to a center of service for elderly persons)
• Conn. Gen. Stat. § 12-412(9) (exemption for food products, meals, candy, confectionery, and beverages sold to patients, residents, or care recipients of an assisted living facility; as amended by 2000 Conn. Pub. Acts 174, § 9)
• Conn. Gen. Stat. § 17b-425 (definition/description of a senior center)

Regulations:

• Conn. Agencies Regs. § 12-407(2)(i)(J)-1(e) (definition of "business management services") and -1(h) (definition of "core business activities")
• Conn. Agencies Regs. § 19-13-D105(2) (assisted living services agency)

Related DRS guidance:

• Ruling No. 93-5 (nutrition-related management services to a nursing home are taxable business management services)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2002-4

Original ruling text

Ruling 2002-4, Sales and Use Taxes / Business Management Services

FACTS:

The service provider (the “Company”) is entering into a contract to provide meals in an assisted living facility for elderly persons.  The Company will supply food, dietary supplies, linens, uniforms, labor, and management services and will cover associated personnel fringe benefit costs to prepare three meals a day at the assisted living facility.  The assisted living facility is not a nonprofit hospital, nursing home, rest home or residential care home.  The assisted living facility is a for-profit entity.

I S SUES:

Will the Company render taxable business management services under Conn. Gen. Stat. §12-407(2)(i)(J) to the assisted living facility when it manages the food service operation at the assisted living facility?

Does the exemption under Conn. Gen. Stat. §12-412(35) for sales of services and tangible personal property to a center of service for elderly persons apply to the sales of meals and services under the contract with the assisted living facility?

Does the contract between the Company and the assisted living facility qualify for exemption under Conn. Gen. Stat. §12-412(9) as sales of food products, meals, candy, confectionery and beverages to patients, residents, or care recipients of an assisted living facility?

R ULING:

The services rendered by the Company to the assisted living facility in connection with preparing meals for the residents of such facility are subject to tax under Conn. Gen. Stat. §12-407(2)(i)(J) as business management services.

Sales by the Company to the assisted living facility are not exempt under Conn. Gen. Stat. §12-412 (35) as sales of services or tangible personal property to a center of service for elderly persons.

Any charges for sales of food products, meals, candy, confectionery and beverages directly to patients, residents and care recipients of the assisted living facility are exempt from tax under Conn. Gen. Stat. §12-412 (9).

DISCUSSION:

Business management services are subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(J).  Conn. Agencies Regs. §12-407(2)(i)(J)-1 describes business management services and provides that such services are taxable when they relate to the core business activities of a business.

Conn. Agencies Regs. §12-407(2)(i)(J)-1(e) defines the term “business management services” to mean and include

the provision of general or specialized day-to-day management of a service recipient’s personnel with respect to, or the controlling or directing of, all or a portion of the core business activities . . . of a service recipient . . . .

Conn. Agencies Regs. §12-407(2)(i)(J)-1(h) defines the term “core business activities” to mean and include

activities directly related to a service recipient’s lines of business involving sales of products, property, goods or services to others, its capital structure, its budgeting and its short-range, long-range or strategic planning.

Ruling No. 93-5 concerns the taxability of nutrition-related management services provided to a nursing home.  Ruling No. 93-5 states the following:

The Home’s core business is caring for its residents.  Providing nutritionally balanced meals to its residents is an activity that is directly related to the Home’s line of business. . . .  Thus, the Company’s charges for providing nutrition-related management services to the Home are subject to sales and use taxes to the extent the charges relate to meals served to the Home’s residents.

As is the case for meal management services in a nursing home, preparing and serving meals to the residents of an assisted living facility directly relates to the core business activities of such facility, and so managing the food service operation of an assisted living facility is a business management service.

Conn. Gen. Stat. §12-412(35) provides an exemption for sales of tangible personal property and services to any center of service for elderly persons.  However, a review of the definitions of “senior center” and “assisted living facility” shows that they are two different establishments.

An assisted living facility is a residential community that provides services such as those described as assisted living services in Conn. Agencies Regs. §19-13-D105(2), Assisted living services agency .  Assisted living facilities provide nursing services and supportive services to their residents with activities of daily living such as meals, laundry, transportation, housekeeping and recreation.  In contrast, as described in Conn. Gen. Stat. §17b-425, a senior center provides recreational, cultural, and other leisure time activities, and informational, transportation, referral and preretirement and postretirement counseling services for elderly persons.  Although both assisted living facilities and senior centers provide services for elderly persons, senior centers do not provide housing for older persons, nursing services and assistance with daily living activities such as housekeeping and laundry.

Since an assisted living facility is not a “center of service for elderly persons as described in subdivision (d) of section 17b-425,” the business management contract to manage the food service operation at the assisted living facility is not exempt from tax under Conn. Gen. Stat. §12-412(35).

Conn. Gen. Stat. §12-412(9), as amended by 2000 Conn. Pub. Acts 174, §9, provides an exemption for sales of food products, meals, candy, confectionery and beverages sold to patients, residents or care recipients of an assisted living facility.  Therefore, any charges made by the company for its direct sales to residents of an assisted living facility for the sales of food products, meals, candy, confectionery and beverages are exempt from tax.

LEGAL DIVISION

July 29, 2002