Would a college meal plan lose its sales-tax exclusion if it started refunding students for unused meal points?

Plain-English summary

Jody Ann Michelman asked about a university meal plan: a student buys a photo-ID meal card for $425, receiving "points" to spend on food and drink at campus establishments, and no refund is issued for points left unused at year's end. The question: would the plan lose its sales-tax exclusion if it were changed to refund unused points?

The Department held the plan is excluded as-is, but adding refunds for unused points would end the exclusion.

• The meal-plan exclusion. Prepared food and drink are normally taxed under § 1105(d). But sales at a campus establishment to an enrolled student under a contract where the student doesn't pay cash at the time served are excluded (§ 1105(d)(ii)(B)); the institution must be exempt or state-sanctioned (20 NYCRR 527.8(h)(3)).
• Refunds make points into "scrip." The exclusion doesn't apply to meals paid for in cash or in scrip. If the contract refunded unused points as described, the points would be equivalent to scrip, so the plan would no longer qualify and tax would be due on the amount paid.
• Same result if refunds hinge on paying tax on points used — that's close enough to using scrip to defeat the statute's purpose.
• One refund that's still exempt. A plan that refunds only when a student withdraws from school, with the refund measured solely by time remaining (not food consumed), would remain exempt, because that refund isn't tied to how much food was bought.

What this means for you

Non-cash campus meal plans are tax-exempt — but only if they don't function like a stored-value cash card. The exclusion rewards true meal contracts; the moment unused value is refundable, the "points" look like scrip (a cash substitute), and the food becomes taxable.

Design the refund rules carefully. Refunding leftover points (or tying refunds to sales tax on points used) breaks the exclusion. A pro-rata refund keyed to withdrawal date — not to food consumed — preserves it.

This affects pricing, not just compliance. If a change flips the plan into taxable territory, sales tax attaches to the full amount paid, which materially changes the cost to students and the school's collection duties.

Common questions

Q: Is our college's prepaid points meal plan taxable?
A: Not if students don't pay cash at the time served and unused points aren't refundable. Under those facts the § 1105(d)(ii)(B) exclusion applies.

Q: We want to refund students for points they don't use. Any tax impact?
A: Yes. Refunding unused points makes the points equivalent to scrip, so the plan loses its exclusion and tax is due on the amount paid.

Q: Can we ever give refunds without losing the exclusion?
A: A refund available only when a student withdraws, measured solely by the time remaining under the contract (not by food consumed), keeps the exclusion.

Citations and references

Statutes:

• Tax Law § 1105(d) — tax on food and drink sold by restaurants and other establishments
• Tax Law § 1105(d)(ii)(B) — exclusion for student meal plans not paid in cash at time served

Regulations:

• 20 NYCRR 527.8(h)(3) — student meal-plan exclusion; scrip example

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_8s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84(8)S
Sales Tax
March 8, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830509A

On May 9, 1983 a Petition for Advisory Opinion was received from Jody Ann Michelman,
294 Parkdale, Buffalo, N.Y. 14213.
Petitioner request a clarification of section 1105(d)(ii)(B) of the Tax Law, concerning the
applicability of the sales tax to student meal plans.
Section 1105(d) of the Tax Law imposes a tax on the receipts from the sale of food or drink
sold in or by restaurants, taverns or other establishments in this state. The statute, however, excludes
from tax receipts from such sales where made "at a restaurant, tavern or other establishment located
on the premises of a college, university or a school (other than a nursery school, kindergarten,
elementary or secondary school) to a student enrolled therein who purchases such food or drink
under a contractual arrangement whereby the student does not pay cash at the time he is served ....
"Tax Law § 1105(d)(ii)(B). Such educational institutions must be operated by an exempt
organization or with the sanction of the State of New York. 20 NYCRR 527.8(h)(3).
Petitioner describes a university meal plan under which a photo-identification meal card is
purchased for $425, the student's right to receive food and drink being represented as "points" on the
card. These points can then be "spent" for food and drink at any of certain food establishments on
campus. Where at the end of the academic year a student has used less than all of his or her points
no refund is issued. Petitioner asks whether her meal plan would lose its exclusion from sales tax
under section 1105(d)(ii)(B) of the Tax Law if it was modified to provide for such refunds. It is
concluded herein that such a modification would result in a loss of the exclusion, and that tax would
be due on the amount paid.
The exclusion provided under the statute does not apply where meals are paid for in cash.
It also would not apply where meals are paid for in scrip. 20 NYCRR 527.8(h)(3) ex. 3. If a contract
provided for refunds in the manner described by Petitioner, the points would be equivalent to scrip.
Therefore, if the meal plan contract at Petitioner's university were modified to provide for such
refunds, it would no longer qualify for the exclusion and tax would be due on the amount paid. The
same conclusion would be reached if the contract provided for refunds conditioned on the payment
of sales tax on the points used, because this would be sufficiently close to the use of scrip as to avoid
the purposes of the statute. Finally, it is to be noted that if a plan provided for refunds where a

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-84(8)S
Sales Tax
March 8, 1984

student withdraws from school prior to the end of the term of the contract, the refund being measured
solely by the amount of time remaining under the contract, such plan would be exempt, because the
refund would not necessarily be related to the amount of food and drink consumed.

DATED: February 21, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau