Are restaurant meals for a municipality's employees on official business exempt from sales tax when the city pays directly, and when the employee pays and is reimbursed?

Plain-English summary

The City of Rome (Rome, New York) asked whether sales tax is due on restaurant meals provided to its employees on City business, in two situations: (1) the City pays the restaurant directly, and (2) the employee pays and is later specifically reimbursed by the City. It also asked which exemption certificate the employee should use in the second case.

The answer: exempt in both situations.

• § 1116(a)(1) exempts sales to New York State or any of its political subdivisions where the government is the purchaser, user, or consumer. The City of Rome is such a political subdivision.
• City pays directly: where the meal is billed to and paid for by the City, the exemption applies — the City is the purchaser.
• Employee pays and is reimbursed: the sale is likewise exempt, but only where the employee is reimbursed the full cost of the meal, based on required documentary substantiation of the expense. (A partial reimbursement doesn't qualify.)
• Form: in the reimbursement case, the employee uses Form AC 946, Tax Exemption Certificate, to claim the exemption.

What this means for you

Government purchases are exempt — and a reimbursed employee can stand in the government's shoes. The exemption reaches meals paid directly by the municipality and meals an employee fronts and is fully reimbursed for, because the government is the real purchaser/consumer.

"Specifically reimbursed" means the full amount, with documentation. The reimbursement route works only if the employee gets back the entire cost and substantiates it. Per-diem-style or partial reimbursements aren't the same thing under this opinion.

Restaurants: get the certificate. When a government employee claims the exemption on a reimbursed meal, take a properly completed Form AC 946 to support not charging tax.

Common questions

Q: The city pays the restaurant directly for an employee's meal — is it taxable?
A: No. That's a sale to a political subdivision as the purchaser, which is exempt under § 1116(a)(1).

Q: The employee pays out of pocket and the city reimburses — still exempt?
A: Yes, if the employee is reimbursed the full cost with required documentary substantiation. The employee uses Form AC 946 to claim the exemption.

Q: What if the employee is only partially reimbursed?
A: The exemption in the reimbursement scenario depends on the employee being reimbursed the full cost. A meal that isn't fully reimbursed doesn't meet the opinion's condition.

Citations and references

Statutes and authority:

• Tax Law § 1116(a)(1) — exempts sales to New York State and its political subdivisions where the government is the purchaser, user, or consumer
• Form AC 946, Tax Exemption Certificate — the document a government employee uses to claim exemption on a specifically reimbursed meal

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_196s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80(196)S
Sales Tax
October 9, 1980

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800623A

On June 23, 1980, a Petition for Advisory Opinion was received from the
City of Rome, City Hall, Liberty Plaza, Rome, New York 13440.
The issue raised is whether sales tax is due on the sales of restaurant
meals provided to Petitioner's employees while the same are engaged in City
business where (1) Petitioner makes direct payment for the meals and (2) where
the meals are paid for by the employee, who subsequently receives specific
reimbursement from Petitioner. Petitioner also inquires as to the proper form of
exemption certificate to be employed in the latter case, should the transaction
in such instance be held to be exempt.
Section 1116(a)(1) of the Tax Law provides for an exemption from sales tax
in the case of sales to "The state of New York, or any of its ... political
subdivisions where it is the purchaser, user or consumer ...." The City of Rome
is such a political subdivision of the State of New York.
Where an employee of Petitioner while engaged in City business is provided
with a meal the cost of which is directly billed to and paid for by Petitioner,
the above-described exemption is applicable to the receipts from such sale. Where
the employee himself pays for the meal and is specifically reimbursed therefor
by Petitioner such sale is likewise exempt. The cost of such a meal is deemed to
have been specifically reimbursed only where the employee is reimbursed in the
full amount of such cost, based upon a required documentary substantiation of the
expense.
Accordingly, in both of the situations described by Petitioner the receipts
from the sale are exempt from tax. Form AC 946, Tax Exemption Certificate, is the
appropriate document to be utilized by Petitioner's employees to obtain the
exemption where they are proceeding pursuant to a specific reimbursement plan.

Dated: September 18, 1980

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR