How did PLR 94-4 tax a food-service company selling university meal plans as the school's agent?

Plain-English summary

South Carolina Private Letter Ruling 94-4 addressed a food-service company acting as a university's agent and selling board plans directly to students.

The ruling treated unprepared food bought for meals furnished under the board plan as taxable retail purchases. Meals and other food sold outside the board plan, including cash sales, were also taxable retail sales.

Because ABC made retail sales and withdrew food for use from the same inventory, the ruling required it to buy that inventory at wholesale. As the university's agent, ABC then reported retail sales using gross proceeds and withdrawals using the property's fair market value, subject to the substantial-retail-sales condition discussed in the ruling.

Common questions

Q: Did the university agency relationship make board-plan food exempt? No.

Q: Were cash meal sales taxable? Yes.

Q: How did the ruling handle shared inventory? It required wholesale purchasing, then separate reporting of retail sales and withdrawals for use.

Q: Can another food-service company rely on this PLR? No. It was limited to the recipient and stated transactions.

Citations and references

• S.C. Code Ann. § 12-36-10 et seq. (historical sales and use tax law)
• S.C. Regulation 117-174.82 (resale certificate discussed in the PLR)
• South Carolina Revenue Ruling 93-9 (more detailed food-service analysis referenced by the PLR)

Subject

Food Service for Educational Institutions

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR94-4.pdf

Original ruling text

SC PRIVATE LETTER RULING #94-4 (TAX)

TO:

ABC

SUBJECT:

Food Service for Educational Institutions
(Sales/Use Tax)

DATE:

March 28, 1994

REFERENCE:

S.C. Code Ann. Section 12-36-10 et seq (Supp. 1993)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1993)
S. C. Revenue Procedure #93-6

SCOPE:

A Private Letter Ruling is a document issued by the Department of Revenue
to a specific person.

NOTE:

A Private Letter Ruling may only be relied upon by the person to whom it is
issued and only for the transaction or transactions to which it relates. A
Private Letter Ruling has no precedential value.

Question:
How is the state sales tax applied with respect to sales of a meal plan sold by ABC, Inc. to the
students of XYZ University - when such sales are made by ABC, Inc. as an agent for XYZ?
Conclusions:
Sales of unprepared food products to ABC, Inc., as agent of XYZ, for use in furnishing meals
under a board plan at XYZ are retail sales subject to the sales or the use tax.
Sales of meals or other food items by ABC, Inc., as agent of XYZ, other than those furnished
under the board plan are retail sales subject to the sales or use tax.
NOTE: Since ABC, Inc. is making both retail sales and withdrawing for use from the same stock
of goods, ABC, Inc. must purchase at wholesale all of the goods so sold or used. ABC, Inc., as
agent for XYZ, must then report retail sales based on gross proceeds of sales and withdrawals for
use based on the property's fair market value.
For a more detailed discussion of this issue, see S. C. Revenue Ruling #93-9.
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Facts:
ABC, Inc., a food service provider, will enter into a contract as "agent" with the XYZ University.
Under the terms of the contract, ABC, Inc. would be responsible for:
a. Purchasing all necessary foods and supplies for operation of the food service;
b. Employing and paying all necessary personnel for operation of the food service;
c. Obtaining and keeping in force public liability and products liability insurance in an
amount designated by the educational institution;
d. Obtaining and paying for all permits and licenses for operation of the food service;
e. Providing workmen's compensation insurance for all personnel employed by agent;
f. Paying all cost and expenses (including taxes) involved in the operation of the food
service;
g. Keeping and maintaining all food service equipment and facilities belonging to the
educational institution clean and in proper condition; and,
h. Collecting and remitting any applicable taxes.
ABC, Inc. will be reimbursed for all of the above expenses.
In addition to being reimbursed for costs and expenses incurred in connection with the food service
operation, ABC, Inc. will receive a management fee for its services.
At the request of XYZ, ABC, Inc. will sell the "board plan" as an agent for XYZ directly to the
students rather than the educational institution selling the board plan to the students and then ABC,
Inc. invoicing the educational institution. ABC, Inc. may also sell some meals for cash. Under the
board plan, ABC, Inc. will retain the funds received from the students and credit that amount
against invoices submitted to XYZ.
Discussion:
In S. C. Revenue Ruling 93-9, the Commission considered the sales tax implications of a food
service company selling a meal plan as an agent for an educational institution. With respect to
meals provided under a board plan the Commission determined:
Sales to a food service company of unprepared food products for use in furnishing
meals under a board plan, are retail sales subject to the sales tax or the use tax if the
food service company is the agent of the educational institution.

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With respect to cash or other food sales not under a board plan, the Commission determined:
Sales of meals and other foods by a food service company as the agent of an educational
institution, other than those furnished under a board plan, are retail sales subject to the sales
tax or the use tax.
Concerning food service companies making both retail sales and withdrawing for use from the
same stock of goods, the Commission determined:
Food service companies which are making both retail sales and withdrawing for use from
the same stock of goods are to purchase at wholesale all of the goods so sold or used. They
will then report retail sales based on gross proceeds of sales and withdrawals for use based
on the property's fair market value. In order for this provision to apply, the educational . .
.institution must have a substantial number of retail sales. To comply with this provision,
educational . . . institutions should present to their suppliers a Form ST-8A - Resale
Certificate. This will allow the suppliers to sell these goods at wholesale to the educational .
. institution. See SC Regulation 117-174.82.
For questions concerning the application of sales tax and use tax on a food service company acting
as an agent for an educational institution, contact John McCormack at (803) 737-4438 or Jean
Croft at (803) 737-5007.

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