Are 'suggested donations' a religious organization collects for meals taxable as sales of food and drink?

Plain-English summary

The SYDA Foundation, a not-for-profit recognized as tax-exempt under IRC § 501(c)(3) for religious and charitable purposes, serves specially prepared meals alongside its daily religious services. It says a participant may eat without charge, and though it solicits a donation, the donation isn't mandatory. The question arose in an audit: are the amounts it receives for the meals subject to sales tax?

The Department held the payments are taxable consideration for the meals.

• The audit found real prices, not gifts. The Foundation's fiscal reports showed meal counts and standard prices per meal, and it issued guest checks for each meal a "donation" was made — with identical amounts paid for every breakfast, every lunch, every dinner. It had published a suggested-donation list to reimburse its meal costs.
• That makes them consideration. The participants paid these amounts to compensate the Foundation for the meals and would not have paid but for the meals; the Foundation solicited the payments and posted a price list. So the amounts are consideration — "receipts" valued in money (§ 1101(a)(3)).
• The exempt-organization shield has a food exception. Section 1116(a) generally exempts an exempt organization's sales, but § 1116(b)(2) provides that food and drink sold by such an organization are taxable under § 1105(d) notwithstanding that exemption.
• No profit motive is required. It makes no difference that the Foundation only intended to recover its costs — "there is no requirement in the Tax Law that a vendor intend to make a profit before his sales become subject to tax" (Sperry Rand Corp. v. State Tax Commission; Wayfarer Ketch Corp.).
• Result: all amounts received for furnishing the meals are taxable receipts under § 1105(d), and the Foundation must collect the tax.

What this means for you

Calling a payment a "donation" doesn't decide the tax — the facts do. If people pay a set amount to get a meal, and you post prices, ring up guest checks and collect the same figure every time, New York treats those payments as the price of food, not gifts. A genuinely optional, unsolicited, no-fixed-amount contribution looks different from a suggested price list tied to each plate.

Even a religious or charitable exemption doesn't cover food sales. The § 1116 exemption for an organization's sales carves out food and drink: meals sold by an exempt organization's restaurant-type operation stay taxable under § 1105(d). Don't assume your 501(c)(3) status makes meal charges tax-free.

Recovering only your cost isn't a defense. New York doesn't require a profit motive for a sale to be taxable. Charging exactly what the food costs you still produces taxable receipts if the payment is consideration for the meal.

Common questions

Q: We ask for 'voluntary donations' for meals — is that taxable?
A: It can be. If the payments function as the price of the food — set amounts, posted prices, guest checks, paid because the meal is provided — New York treats them as taxable consideration despite the "donation" label.

Q: Doesn't our religious/charitable exemption cover the meals?
A: No. Section 1116(b)(2) keeps food and drink sold by an exempt organization taxable under § 1105(d), notwithstanding the general § 1116(a) exemption for its other sales.

Q: We only try to recover our costs — does that keep it exempt?
A: No. There's no requirement that a vendor intend a profit for a sale to be taxable. Recovering cost still produces taxable receipts if the payment is consideration for the meal.

Citations and references

Statutes:

• Tax Law § 1105(d) — taxes food and drink sold in or by restaurants, taverns or other establishments
• Tax Law § 1116(a); § 1116(b)(2) — general exemption for an exempt organization's sales, but food/drink sold by such an organization remain taxable under § 1105(d)
• Tax Law § 1101(a)(3) — "receipts" means the sales price valued in money, whether received in money or otherwise

Authorities cited:

• Sperry Rand Corp. v. State Tax Commission, 99 Misc. 2d 716 (1977); Wayfarer Ketch Corp., TSB-H-82(107)S — no profit motive is required for a sale to be taxable

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (18) S
Sales Tax
May 5, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S850604A

On June 4, 1985, a Petition for Advisory Opinion was received from SYDA Foundation,
County Road #52, Brickman Road, South Fallsburg, New York 12779.
The issue raised is whether amounts received by Petitioner for providing meals in
conjunction with its religious activities are subject to New York State and local sales and use tax.
This issue arises within the context of an audit of Petitioner by the Audit Division of the Department
of Taxation and Finance.
Petitioner states in its petition that it is a not-for-profit corporation which has been recognized
by the Internal Revenue Service as exempt from tax under section 501(c)(3) of the Internal Revenue
Code. Petitioner states that its purposes are exclusively religious and charitable.
Petitioner serves specially prepared meals in conjunction with its daily religious services.
Petitioner states that a person attending one of the Foundation's daily programs who wishes to
partake of such meals may do so without charge. Petitioner indicates that participants may make a
donation for the meal but such donation is not mandatory. Petitioner maintains that the voluntary
nature of such donations is evidenced by the fact that some persons eat without making a donation.
Pursuant to regulation section 901.3(a), the Audit Division has disputed Petitioner's statement
of facts. The Audit Division contends that the funds received by Petitioner are actually amounts paid
as consideration for the meals received. The Audit Division points to fiscal reports of the Petitioner
which indicate the number of meals furnished per month and standard prices charged per meal. The
Audit Division also points to guest checks issued by Petitioner for each meal for which a donation
is made as additional proof of its contention. The guest checks appear to indicate that standard
prices were paid for breakfast, for lunch and for dinner and that all "donations" actually paid for
breakfast were of exactly the same amount, as were the "donations" for lunch and for dinner.
Pursuant to regulation section 901.3(c), the comments of the Audit Division were provided
to the Petitioner. In response to the comments of the Audit Division, Petitioner restated its position
that the payments were not consideration for the meals and were not a prerequisite to partaking of
meals.
Petitioner stated further that:
"1.

SYDA Foundation published suggested donation list in response to repeated
inquiries from contributors as to the amount that would be appropriate to

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

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

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TSB-A-86 (18) S
Sales Tax
May 5, 1986

reimburse SYDA by way of donation for the meals they would be eating
2.

3.

A donation is (sic) any amount is not a pre-requisite to partaking of the food
provided free of charge, but is solicited from persons not residing on the
premises.
Donations for meals are never even solicited from persons residing
on the premises.

4.

The suggested donation amounts are based on the estimates of the actual cost
of providing the meals and are solicited only as a method of reimbursing
SYDA Foundation for such costs from a donating party who wishes to do so.

5.

Meals are not automatically refused to persons, who in good faith desire to
participate in the religious practice associated with the meals, based on
whether or not such persons desires (sic) to make a donation."

Section 1105(d) of the Tax Law imposes a tax upon: "The receipts from every sale of... food
and drink of any nature or of food alone, when sold in or by restaurants, taverns or other
establishments in this state.... "
Section 1116(a) of the Tax Law provides that sales by organizations formed exclusively for
religious, charitable, scientific, testing for public safety, literary or educational purposes are generally
exempt from tax. However, section 1116(b)(2) of the Tax Law provides that sales of food and drink
in or by a restaurant operated by such an organization are subject to tax under section 1105(d)
notwithstanding the provisions of section 1116(a) of the Tax Law.
Section 1101(a)(3) of the Tax Law defines "receipts" as "the amount of the sales price of any
property and the charge for any service taxable under this article, valued in money, whether received
in money or otherwise.... "
Based upon the information supplied by Petitioner, it must be concluded that the amounts
paid to Petitioner by participants were paid as consideration for the meals furnished. The
participants paid these amounts to compensate Petitioner for the cost of the meals. The participants
would not have paid these amounts but for the furnishing of the meals by Petitioner. Furthermore,
Petitioner solicited these payments from participants and posted a price list of amounts to be paid.
It makes no difference that Petitioner only intended to recover the cost of providing the meals. There
is no requirement in the Tax Law that a vendor intend to make a profit before his sales become
subject to tax. (See: Sperry Rand Corporation v. State Tax Commission 99 Misc 2d 716 (1977);
Wayfarer Ketch Corp., Decision of the State Tax Commission, June 11, 1982, TSB-H-82(107)S).

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TSB-A-86 (18) S
Sales Tax
May 5, 1986

Accordingly, all amounts received by Petitioner with respect to its furnishing of meals to
participants are receipts subject to tax under section 1105(d) of the Tax Law upon which Petitioner
is required to collect tax.

DATED: May 5, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.