Can a university sell meals tax-free to residential students who pay with 'dining dollars' from a mandatory meal plan, at dining locations that are also open to the general public?

Plain-English summary

The Illinois Department of Revenue ruled that a university (referred to as UNIVERSITY) may sell meals tax-free to residential students who pay with "Dining Dollars" purchased as part of a mandatory meal plan, even when the sale happens at a dining location that is open to the general public -- as long as the university can produce an auditable and verifiable record distinguishing those exempt sales from every other kind of sale.

Under 86 Ill. Adm. Code 130.2005(b)(4)(A), a school's cafeteria generally owes no Retailers' Occupation Tax as long as it sells only to students and employees; once the facility opens to the public, all sales made there become taxable. As an accommodation, the Department has long allowed universities with no separate closed dormitory cafeteria to still sell meals tax-free in a public-facing dining facility to residential, meal-plan students, provided there is a system that produces an auditable and verifiable record of those specific sales (ST 95-0195-PLR; ST 07-0002-PLR).

Here, the university's point-of-sale system tagged "Dining Dollars" bought as part of a mandatory meal plan with a distinct "Residential" ("Res") code, separate from "Additional" ("Add") dining dollars bought separately by residential students or by off-campus students. Because the system could isolate and verify sales paid with "Res" dollars, those sales qualified for the exemption -- but sales paid with "Add" dollars, cash sales, and sales to non-residential students or employees remained taxable. The ruling also confirms that restaurants operating on campus as licensees (not the university itself) cannot claim the exemption, per Subway Restaurants v. Topinka.

What this means for you

Universities and colleges that operate dining services

If your school sells meals through dining locations open to the public, you can still sell tax-free to residential, meal-plan students -- but only if your point-of-sale or accounting system can produce an auditable and verifiable record isolating those specific sales at or before the time of sale. A simple student ID check is not enough (ST 07-0002-PLR); you need a system-level mechanism, such as a distinct "Residential" tender code, that reliably separates exempt meal-plan purchases from all taxable purchases.

Schools using third-party restaurant licensees or franchises on campus

The exemption belongs to the school itself, not to a restaurant or franchise licensee operating in a campus building. Under Subway Restaurants v. Topinka, 322 Ill. App. 3d 376 (Fourth Dist. 2001), a licensee selling food on campus is not the university's agent, so its sales do not qualify for the university's cafeteria exemption even if the school licenses its brand or system.

Business officers and bursars managing meal-plan and "dining dollars" programs

Only "dining dollars" that can be identified as purchased as part of a mandatory meal plan by a residential student qualify for tax-free treatment. Dining dollars purchased separately (add-on funds) by the same residential students, dining dollars used by off-campus students, cash sales, and sales to faculty/staff/other members of the public are all taxable, even at the exact same dining location.

Accountants and tax professionals

The ruling reaffirms the Department's long-standing "auditable and verifiable record" standard from ST 95-0195-PLR and ST 07-0002-PLR, and applies it to modern point-of-sale tender-tag systems and third-party dining licensing arrangements (86 Ill. Adm. Code 130.2005(b)(4)(A)). It also reinforces that the Department, not the courts, still treats Subway Restaurants v. Topinka as controlling on the licensee/agency question.

Common questions

Q: Does a university have to run its dining facilities as closed, students-only cafeterias to get the meal tax exemption?
A: No. As an accommodation, universities without a separate closed dormitory cafeteria can still sell meals tax-free to residential, meal-plan students even in dining facilities open to the general public, as long as there is an auditable and verifiable record system distinguishing those sales.

Q: What makes dining-dollar sales "auditable and verifiable"?
A: The university's point-of-sale system must be able to identify, at or before the time of sale, that the payment came from Dining Dollars purchased as part of a mandatory meal plan by a student living in university housing. In this ruling, that was done through a distinct "Residential" ("Res") tender-tag code, separate from "Additional" ("Add") dining dollars. A student ID card alone is not sufficient (ST 07-0002-PLR).

Q: Are all "dining dollars" purchases tax-free for residential students?
A: No. Only dining dollars purchased as part of the mandatory meal plan ("Res") are exempt. Dining dollars purchased separately or as add-ons by the same residential students ("Add"), dining dollars used by off-campus students, and any cash sales remain taxable.

Q: What about food sold by a franchise restaurant located on campus?
A: If the restaurant, not the university, is making the sale as a licensee (as in the COMPANY2, COMPANY3, and COMPANY4 arrangements described in the ruling), the university's exemption does not extend to those sales just because the university licenses the restaurant's system. This follows Subway Restaurants v. Topinka, 322 Ill. App. 3d 376 (Fourth Dist. 2001).

Q: Can another university rely on this specific ruling?
A: No. This is a Private Letter Ruling, binding on the Department only as to the requesting university and only to the extent the facts it provided were complete and accurate. Other schools with similar meal-plan and dining-dollar programs should request their own ruling or consult a licensed Illinois tax professional.

Citations and references

• 86 Ill. Adm. Code 130.2005(b)(4)(A) (cafeteria/dining-facility exemption; loses exemption once open to the public)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on retail sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax on property purchased at retail)
• ST 95-0195-PLR (accommodation for public-facing dining facilities with auditable/verifiable records), cited in Subway Restaurants v. Topinka, 322 Ill. App. 3d 376, 381, 385-387 (Fourth Dist. 2001)
• ST 07-0002-PLR (auditable/verifiable record must exceed a simple ID check; no cash sales may be exempt)
• ST 01-0004-PLR (earlier PLR applying the same accommodation)
• ST 11-0108-GIL (General Information Letter discussing the accommodation)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/ST-23-0002-PLR.pdf

Original ruling text

ST-23-0002-PLR 04/04/2023 EXEMPT ORGANIZATIONS
Universities may make tax-free sales of meals to residential students who use
“dining dollars” purchased as part of a mandatory meal plan at university
operated dining locations open to the general public, but only if there is an
auditable and verifiable record of food sales to each of those students. See 86
Ill. Adm. Code 130.2005. (This is a PLR.)
April 4, 2023

NAME
UNIVERSITY
ADDRESS
Dear NAME:
This letter is in response to your letter dated October 7, 2022, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer
inquiries concerning the application of a tax statute or rule to a particular fact situation.
A PLR is binding on the Department, but only as to the taxpayer who is the subject of
the request for ruling and only to the extent the facts recited in the PLR are correct and
complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General
Information Letter (“GIL”) is to direct taxpayers to Department regulations or other
sources of information regarding the topic about which they have inquired. A GIL is not
a statement of Department policy and is not binding on the Department. See 2 Ill. Adm.
Code 1200.120. You may access our website at www.tax.illinois.gov to review
regulations, letter rulings and other types of information relevant to your inquiry.
Review of your request disclosed that all the information described in paragraphs
1 through 8 of Section 1200.110 appears to be contained in your request. This Private
Letter Ruling will bind the Department only with respect to UNIVERSITY, for the issue or
issues presented in this ruling, and is subject to the provisions of subsection (e) of
Section 1200.110 governing expiration of Private Letter Rulings. Issuance of this ruling
is conditioned upon the understanding that neither UNIVERSITY, nor a related taxpayer
is currently under audit or involved in litigation concerning the issues that are the subject
of this ruling request. In your letter you have stated and made inquiry as follows:

Please accept this letter as a request for a Private Letter Ruling pursuant
to Illinois Administrative Code Section 1200.110(b).
UNIVERSITY
requests the ruling to determine whether the Illinois Retailers' Occupation
Tax ("ROT") should be collected and paid on food sold to residential
students participating in meal plans at University operated dining locations
open to the general public while non-public residence hall cafeteria style
dining options are available.

UNIVERSITY/NAME
Page 2
April 4, 2023

1.

A complete statement of the facts and other information pertinent to
the request.

Chartered in YEAR1, UNIVERSITY first opened its doors as the
UNIVERSITY in YEAR2 as a teachers' school. We have since grown into
a world-class, research-focused public institution that attracts students
from across Illinois, the country, and the world. As of the Fall YEAR3
semester, over ##### students were enrolled at the University, #### of
which were residential students living in campus housing.
All housing contracts require the purchase of a meal plan, which entitles
residential students to meals at any of the University's dining options. The
base meal plan entitles students to ## meals a week and $$$ in declining
balance "Dining Dollars" per semester, with options to increase the
number of weekly meals up to ## for an additional cost. "Dining Dollars"
can be used at any of the campus dining options which include three
dormitory cafeterias closed to the general public as well as eight retail
locations in various buildings across campus that are open to the public.
While faculty, staff, and commuter students can also purchase meal plans
that include both meals and "Dining Dollars". "Dining Dollars" issued to
residential students are encoded with a separate digital tag to differentiate
them. The University's point-of-sale system can recognize the residential
tender tag and produce an auditable and verifiable record of the related
transactions. "Dining Dollars" can only be used at campus dining
locations, all of which are operated by the University.
All parking on the University's campus requires a permit with the exception
of a visitor lot with a daily fee and several small meter lots around campus.
This significantly restricts potential competition with local, off-campus
dining establishments. See the attached chart of dining locations and
campus maps for more information.
2.

All contracts, licenses, agreements,
documents relevant to the request.

instruments,

or

other

Attached are licensing agreements for COMPANY2, COMPANY3, and
COMPANY4 locations operated by UNIVERSITY as on campus dining
options.
3.

An identification of the tax period at issue, and disclosure of
whether an audit or litigation is pending with the Department as
explained in subsection (a)(3)(C) of this Section.

UNIVERSITY/NAME
Page 3
April 4, 2023
UNIVERSITY is not under audit by the Illinois Department of Revenue
for ROT and there is no ROT litigation pending over this issue.
4.

A statement that to the best of the knowledge of both the taxpayer
and the taxpayer's representative the Department has not
previously ruled on the same or a similar issue for the taxpayer or a
predecessor, or whether the taxpayer or any representatives
previously submitted the same or a similar issue to the Department
but withdrew it before a letter ruling was issued.

To the best of our knowledge, the Illinois Department of Revenue has not
ruled on the same or a similar issue for UNIVERSITY, nor has
UNIVERSITY previously withdrawn after submitting the same or a similar
issue for ruling.
5.

A statement of authorities supporting the taxpayer's views, an
explanation of the grounds for that conclusion and the relevant
authorities to support that conclusion.

The Illinois Department of Revenue has held that meals served to
students and staff in on-premises dining facilities are not subject to
Retailers' Occupation Tax. In any instance in which the dining facility is
opened up for the use of other persons, all sales made at that facility are
subject to Retailer's [sic] Occupation Tax while the facility remains opened
(86 Ill. Admin. Code 130.2005(b)(4)). An accommodation has been
historically granted through several Private letter rulings including ST 950195 - FOOD (PLR) cited in Subway Restaurants v. Topinka, 322 Ill. App.
3d 376, 381, 385-387 (Fourth Dist. 2001)1 , ST 01-0004-PLR and ST 070002-PLR, as well as General Information Letter ST 11-0108-GIL. This
accommodation provides that in dining facilities open to the public, tax free
sales of meals may be made to students who both reside in university
housing and have purchased a meal plan where a mechanism is in place
that can produce a record of those sales that are both auditable and
verifiable. Further, this accommodation has also been extended to
declining balance "Dining Dollars" sales made to those same residential
students with meal plans.

1 In the Subway case, the court said of PLR 95-0195:

"In that ruling, the Department
determined that Southern Illinois University at Edwardsville (Southern) was entitled to
an ROT exemption for food sales to 'students who reside in on-campus university
housing who have purchased a meal plan,' even though such sales were made at the
student union, which was open to students, faculty, staff members, and the general
public. Department of Revenue, Private Letter Ruling No. 95-0195, May 12, 1995."

UNIVERSITY/NAME
Page 4
April 4, 2023
6.

A statement of authorities contrary to the taxpayer's views. Each
taxpayer is under an affirmative duty to identify any and all
authorities contrary to the taxpayer's views. If the taxpayer
determines that there are no authorities contrary to his or her views,
or taxpayer is unable to locate such authority, the request must
contain a statement to that effect.

The accommodation above comes with the preface that the
accommodation is made to schools with public dining facilities but have no
non-public dormitory food facility. This line seems to imply that even
where an auditable and verifiable record is produced for sales to
residential students with meal plans in dining locations open to the general
public, these sales would not be tax free as long as there is at least one
dorm dining facility that is not open to the public. It is unclear if this is
simply legacy language stemming from the original issue from which the
accommodation arose, or if this language continues to disqualify
universities with more diverse dining options from availing themselves of
this accommodation.

7. An identification of any specific trade secret information taxpayer
   requests be deleted from the publicly disseminated version of the
   private letter ruling.
   There is no trade secret information in this request.
8. The signature of the taxpayer or the taxpayer's representative. A
   taxpayer's representative must also provide a properly executed power
   of attorney.
   NAME
   Associate VP, Finance & Treasury

Enclosures: Chart of Dining Locations
Campus Map
COMPANY2 License Agreement
COMPANY3 License Agreement
COMPANY4 Master License Agreement
In your response to the Department’s request for additional information,
your
email response provided the following:
Any additional dining dollars purchased by a residential student would be
coded as “Add” in the system. All dining dollars function in the same

UNIVERSITY/NAME
Page 5
April 4, 2023
manner and can be spent at any campus dining location (closed or open
to the public). The dining dollars are grouped into the below designations:
•
Residential (“Res”) - Only includes Dining Dollars purchased with a
mandatory meal plan by a student who lives on campus. Residential
students, students living on campus, are required to purchase a meal
plan.
•
Additional (“Add”) - Any Dining Dollars purchased by (i) a
residential student separately from a mandatory meal plan, or (ii) by an
off-campus student.
The point-of-sale (“POS”) system separates the dining dollars by type,
residential (“Res”) and additional (“Add”). The system first processes
against the “Res” dollars, if available, as those expire first at the end of
each semester. Then, it will process against any available “Add” Dining
Dollars, which expire at the end of an academic year (these rollover from
the first semester to the second).
All of the “non-franchise” dining locations (COMPANY5, COMPANY6,
COMPANY7, COMPANY8, and COMPANY9) are operated by the
University in campus buildings. Currently, all campus dining facilities open
to the public (franchise and non-franchise) treat all sales as taxable. Our
request is to treat meals purchased with “Res” dining dollars as exempt
from sales tax at all campus dining locations open to the public.
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged
in this State in the business of selling tangible personal property at retail to purchasers
for use or consumption. See 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed
on the privilege of using, in this State, any kind of tangible personal property that is
purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code 150.101. These
taxes comprise what is commonly known as "sales" tax in Illinois.
The question presented here is whether the Retailers’ Occupation Tax should be
paid on food sold to residential students who use dining dollars purchased as part of a
mandatory meal plan at University operated dining locations open to the general public
if non-public residence hall cafeteria style dining options are available. You have
described the “Dining Dollars” program used on campus and have included the
licensing agreements that the University has entered with COMPANY2, COMPANY3,
and COMPANY4.

UNIVERSITY/NAME
Page 6
April 4, 2023
First, a review of the Department’s position regarding sales of food in campus
cafeterias and dining facilities.
As stated in the Department’s regulation at
130.2005(b)(4)(A):
A school does not incur Retailers’ Occupation Tax liability on its operation
of a cafeteria or other dining facility which is conducted on the school’s
premises, and which confines its selling to the students and employees of
the school. In any instance in which the dining facility is opened up for the
use of other persons, all sales that are made at such facility while that
condition continues to prevail are taxable.
In a college campus setting, this has meant that sales of meals by the university
to students and employees in a closed dormitory cafeteria were exempt, but all food
sales in a student union type setting open to the public, including sales to students and
employees, were taxable. The restricted cafeteria exemption has been available to
schools for many years and is supported by 86 Ill. Adm. Code 130.2005(b)(4)(A). The
school would incur Retailers’ Occupation Tax liability if it should engage in selling any of
the same items to the public.
The regulatory provisions and the closed cafeteria concept have served two
purposes. The first purpose served by the closed cafeteria concept is to solve the
practical impossibility that the Department would face when auditing an open facility in
verifying that all sales claimed to be exempt were, in fact, made to students and
employees of the school. The second purpose served by the closed cafeteria concept
is the protection of retailers in competition with the school’s open facility. That is,
student union type (open to the public) selling competes with area food service
establishments for student purchases as well as for purchases by the public. ST 950195-PLR.
As an accommodation to schools that sell meal plans but have no separate
dormitory food facility, the Department has allowed universities to make tax-free sales of
meals to students in a central food facility open to the public. ST 95-0195-PLR. Such
sales by a university may be made tax free in a campus cafeteria that is open to the
public only if there is a mechanism for identifying and documenting, at or before the time
of sale, the nontaxable sales of food to students living in university housing and enrolled
in a meal plan. ST 95-0195-PLR. The mechanism for identifying and documenting
such sales to such students, however, must consist of something more than simply
showing an identification card. ST 07-0002-PLR. These mechanisms must consist of
systems that provide both an auditable and verifiable record of food sales to each of
those students. ST 95-0195-PLR.
To avoid problems of competition, the Department has limited tax-free sales of
food by universities in facilities open to the public to students who live in university
housing and have purchased a meal plan. These sales can only be made tax free if the
school has a program in place that allows appropriate students to be identified in an

UNIVERSITY/NAME
Page 7
April 4, 2023
auditable and verifiable record system. No sales paid for with “dining dollars” may be
made tax exempt unless the “dining dollars” can identify students living in university
housing that have purchased a meal plan. ST 07-0002-PLR. No cash sales may be
made tax exempt. Meals sold to employees of the school and others, including offcampus students, are subject to tax in facilities open to the public. ST 07-0002-PLR.
Over time, the Department has become aware that on-campus food services
have expanded to include various additional kinds of vending arrangements. As your
facts indicate, on-campus food services include not only traditional sales of food by the
University, but sales by the University operating as a franchisee or commercial vendor.
ST 07-000-PLR. The distinction the Department continues to recognize is that the
selling of meals by a university in a food facility open to the public may not be done tax
free except to students who live in university housing and have purchased a meal plan.
For this, there must be an auditable and verifiable record system in place for tracking
these sales.
In 2001, the Illinois Fourth District Appellate Court decided, in the case of
Subway Restaurants v. Topinka, 322 Ill.App.3d 376 (3rd Dist. 2001), that a restaurant
selling food on campus was not an agent of the university for purposes of tax
exemption. The restaurant also was not a wholesale provider of products to the
university for purposes of tax, and the university was not a purchaser of the restaurant’s
products for purposes of an exemption from tax. Therefore, even though the restaurant
operated in a space that it leased from the university, none of the sales made by the
restaurant qualified as exempt from sales tax.
It is the Department’s position, as articulated in the regulation (86 Ill. Adm Code
130.2005(b)(4)(A)), that it must be the school itself that makes such sales. This policy
was affirmed by the Subway case discussed above.
The contracts between the University and COMPANY2, COMPANY3, and
COMPANY4 (“Restaurants”) enclosed with your request, represent the licensing
agreements between the University and each individual Restaurant. The contracts
between the University and the Restaurants are agreements for each Restaurant, as
licensor, to grant the University, as licensee, the right to use each Restaurant’s system
to sell certain products in on-campus dining facilities. In each of these cases, the
University is making sales of food to students and employees in on-campus dining
facilities open to the public as a licensee of these three licensors.
It is the Department’s position that all such sales in on-campus dining facilities
open to the public made by the University as a licensee of each Restaurant are
competitive sales and as such are subject to sales tax except for sales to students who
live in university housing who are using a meal plan. For this exception, there must be
an auditable and verifiable record system in place for tracking these sales. This means,
for example, that the system must be able to distinguish tax-free sales of meals to
students who live in university housing when they use dining dollars purchased as a

UNIVERSITY/NAME
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April 4, 2023
part of a mandatory meal plan (those designated as “Residential” or “Res”) from taxable
sales of meals to those same students when they use dining dollars that are purchased
separately from a mandatory meal plan (those designated as “Additional” or “Add”) as
well as taxable sales of meals to students who do not live in university housing when
they use dining dollars that are purchased separately from a mandatory meal plan (also
designated as “Additional” or “Add”).
All sales of non-food items on campus, including sales made by the school, are
subject to tax regardless of who purchases them. This is ongoing competitive selling.
The factual representations upon which this ruling is based are subject to review
by the Department during the course of any audit, investigation, or hearing and this
ruling shall bind the Department only if the factual representations recited in this ruling
are correct and complete. This Private Letter Ruling is revoked and will cease to bind
the Department 10 years after the date of this letter under the provisions of 2 Ill. Adm.
Code 1200.110(e) or earlier if there is a pertinent change in statutory law, case law,
rules or in the factual representations recited in this ruling.
I hope this information is helpful. If you have further questions concerning this
Private Letter Ruling, you may contact me at (217) 782-2844. If you have further
questions related to the Illinois sales tax laws, please visit our website at
www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217)
782-3336.
Very truly yours,

Samuel J. Moore
Chairman, Private Letter Ruling Committee
SJM:KAR:dlb