How did South Carolina Revenue Ruling 93-9 apply sales and use tax to meals furnished or sold by colleges, hospitals, and their food-service companies?

Plain-English summary

South Carolina Revenue Ruling 93-9 mapped where tax applied when colleges, universities, hospitals, nursing homes, and food-service companies furnished meals. For student meals supplied under a board plan and patient meals supplied as part of medical care, the institution was treated as the consumer: purchases or withdrawals of the unprepared food used for those meals were retail transactions subject to sales or use tax.

Meals sold separately to employees, visitors, students outside a board plan, and other customers were taxable retail sales. The identity of the retailer depended on the contract. A food-service company acting as the institution's agent made the sale for the institution; a company operating as an independent contractor made its own taxable retail sale.

An institution or food-service company making substantial retail sales while also withdrawing food from the same inventory could buy the stock at wholesale with Form ST-8A, report cash retail sales on gross proceeds, and report withdrawals at fair market value. A resale certificate was not appropriate unless the goods would be resold or the mixed-stock rule applied.

Common questions

Q: Were board-plan meals treated like ordinary cafeteria cash sales? No. The food inputs for board-plan meals were treated as the institution's taxable retail purchases or withdrawals; separate cash meals were taxable sales to the customer.

Q: How were patient meals treated? Food used for meals furnished as part of medical care was a taxable retail purchase or withdrawal by the medical institution or its agent.

Q: Who was the retailer when a food-service company was involved? An agent sold for the institution; a non-agent contractor made its own retail sales.

Citations and references

• S.C. Code Ann. §§ 12-36-90 and 12-36-130 (1992 Supp.) — gross proceeds and sales price
• S.C. Code Ann. § 12-36-110 (1992 Supp.) — historical retail-sale treatment of institutional meals
• S.C. Code Ann. §§ 12-36-910 and 12-36-1310 (1992 Supp.) — sales and use tax
• Regulation 117-174.82 — retail sales and withdrawals from the same stock

Subject

Sales of Meals — Educational and Medical Institutions

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR93-9.pdf

Original ruling text

SC REVENUE RULING #93-9

SUBJECT:

Sales of Meals
Educational and Medical Institutions
(Sales and Use Tax)

TAX MANAGER:

John P. McCormack

EFFECTIVE DATE: Applies to all periods open under the statute.
REFERENCE:

S.C. Code Ann. Section 12-36-910 (Supp. 1992)
S.C. Code Ann. Section 12-36-1310 (Supp. 1992)
S.C. Code Ann. Section 12-36-110 (Supp. 1992)
S.C. Code Ann. Section 12-36-90 (Supp. 1992)
S.C. Code Ann. Section 12-36-130 (Supp. 1992)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1992)

SCOPE:

A Revenue Ruling is the Department of Revenue's official interpretation
of how tax law is to be applied to a specific set of facts. A Revenue Ruling
is public information and remains a permanent document until superseded
by a Regulation or is rescinded by a subsequent Revenue Ruling.

Question:
How is the State sales and use tax applied with respect to meals sold or furnished by certain
educational and medical institutions?
Facts:
EDUCATIONAL INSTITUTIONS:
Colleges and universities sell or provide meals and other foods in a variety of ways.
Meals are provided to students in a cafeteria under a board plan. Under such plans, students will
purchase all their meals (breakfast, lunch and dinner) for an entire semester or year at the
beginning of the school year. This is usually done at the same time students pay their tuition and
other fees. Typically, the student who signs up for one of the board plans is given a card that is
used by the student to obtain the meals.

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In addition, students who participate in a limited board plan may purchase individual meals sold
by the college or university in the cafeteria. For example, one board plan may furnish meals to
students Monday through Friday. A student under this limited plan may from time to time
choose to purchase an individual meal in the cafeteria on Saturday or Sunday.
Employees, visitors and students who do not participate in a board plan may also purchase meals
sold by the college or university in the cafeteria. Generally, these meals are purchased on an
individual basis; however, some colleges and universities sell tickets that entitles the purchaser
to several meals.
Also, colleges and universities may sell meals and food to students and others at canteens, snack
bars, and other places around the campus. In addition, food may be sold at concession stands at
sporting and theatrical events.
Finally, colleges and universities may contract with food service companies to sell or furnish
meals on campus. Under such contracts, the food service company will either be an agent of the
institution or will sell the meals to the institution, who has sold the meals to the students via a
board plan.
MEDICAL INSTITUTIONS:
Medical institutions, such as hospitals, infirmaries, and nursing homes, also sell or provide meals
and other foods in a variety of ways.
As part of the professional medical services provided, patients are furnished meals during their
stay at the institution.
Meals and other foods are also sold to employees, visitors and others in cafeterias, canteens, and
snack bars.
As with colleges and universities, medical institutions may contract with food service companies
to sell or furnish meals at the hospital, infirmary, etc., either as agents or on some other basis.
Discussion:
Code Section 12-36-910(A) imposes a sales tax and reads, in part:
A sales tax, equal to five percent of the gross proceeds of sales is imposed upon every
person engaged or continuing within this State in the business of selling tangible personal
property at retail.
Code Section 12-36-1310(A) imposes a use tax and reads, in part:
A use tax is imposed on the storage, use, or other consumption in this State of tangible
personal property purchased at retail for storage, use, or other consumption in this State,
at the rate of five percent of the sales price of the property, regardless of whether the

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retailer is or is not engaged in business in this State.
Therefore, for the 5% sales or use taxes to apply, there must be a retail sale or purchase of
tangible personal property. The liability for the sales tax is upon the seller, while the liability for
the use tax falls upon the purchaser.
Code Section 12-36-110 defines the terms "sale at retail" and "retail sale", in part, as follows:
Sale at retail and retail sale mean all sales of tangible personal property except those
defined as wholesale sales. The quantity or sales price of goods sold is immaterial in
determining if a sale is at retail.
(1)

The terms include:

(c) the withdrawal, use, or consumption of tangible personal property by anyone
who purchases it at wholesale, ....

(h) sales of prepared meals, or unprepared food products used to prepare meals, to
hospitals, infirmaries, sanitariums, nursing homes, and similar institutions,
educational institutions, boarding houses, and transportation companies, if
furnished as part of the service rendered. These institutions and companies are
deemed to be the users or consumers of the property;

Therefore, sales to, purchases by or withdrawals for use by, educational and medical institutions
of meals or unprepared food products used to prepare meals are retail sales subject to the tax
when such meals are furnished to or purchased by students as part of a board plan or to patients
as part of the medical services. Sales by an educational or medical institution, that are not to
students as part of a board plan or to patients as part of the medical services, are retail sales
subject to the tax.
Now that we have determined when the retail sale occurs, we must determine the basis for the
tax.
With respect to sales by South Carolina suppliers to these institutions, the basis for the sales tax
is "gross proceeds of sales". That term is defined in Code Section 12-36-90 to mean, in part, "....
the value proceeding or accruing from the sale, lease, or rental of tangible personal property."
No deductions are allowed for the costs of goods sold, labor or service costs, losses or any other
expenses.

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The term "gross proceeds of sales" also includes "the fair market value of tangible personal
property previously purchased at wholesale which is withdrawn from the business or stock and
used or consumed in connection with the business or used or consumed by any person
withdrawing it ..."
In addressing withdrawals for use, SC Regulation 117-174.82 states that "[o]perators of
businesses who 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 and report both retail sales
and withdrawals for use under the sales tax law." In order for this regulation to apply, the
business must have a substantial number of retail sales. To comply with this regulation,
educational and medical 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 or
medical institution.
With respect to purchases from out of state suppliers by these institutions, the basis for the use
tax is "sales price". That term is defined in Code Section 12-36-130 to mean, in part, ".... the
total amount for which tangible personal property is sold, without any deductions for the cost of
the property sold, the cost of the materials used, labor or service cost, interest paid, losses, or any
other expenses."
Finally, as stated in the facts, some educational and medical institutions contract with food
service companies. Under some of these contracts, the food service company is the agent of the
educational or medical institution. The following quote from 68 Am. Jur. 2d., Sales and Use
Tax, Section 83, provides some guidance in this area:
Where an agent buys goods for his principal, the sale is not made to the agent for the
purposes of resale, but is in effect a transfer from the seller to the principal.
Conclusions:
A. EDUCATIONAL INSTITUTIONS:
Meals Served Under Board Plan

1. Sales to an educational institution 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.
2. 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.
3. Sales by food service companies of meals to an educational institution or directly to the
   students, as part of a board plan, are retail sales subject to the sales or the use tax if the
   food service company is merely under contract with the educational institution and is not
   the agent of the educational institution.

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FOR ADDITIONAL INFORMATION CONCERNING SALES BY, AND
PURCHASES FROM, SUPPLIERS (INCLUDING INFORMATION ON RESALE
CERTIFICATES), SEE SECTIONS C AND D BELOW.
Cash or Other Food Sales, Not Under a Board Plan

1. Sales by an educational institutions of meals and other foods (including the purchase of
   tickets that entitles the purchaser to several meals), other than those furnished under a
   board plan, are retail sales subject to the sales tax or the use tax.
2. 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.
3. Sales of meals and other foods by a food service company, other than those furnished
   under a board plan, are retail sales of the food service company subject to the sales or the
   use tax.
   FOR ADDITIONAL INFORMATION CONCERNING SALES BY, AND
   PURCHASES FROM, SUPPLIERS (INCLUDING INFORMATION ON RESALE
   CERTIFICATES), SEE SECTIONS C AND D BELOW.
   B. MEDICAL INSTITUTIONS:
   Meals and Other Food Served to Patients as part of Medical Care
4. Sales to a medical institution of unprepared food products, for use in furnishing meals
   and other food to patients as part of their medical care, are retail sales subject to the sales
   tax or the use tax.
5. Sales to a food service company of unprepared food products, for use in furnishing meals
   and other food to patients as part of their medical care, are retail sales subject to the sales
   tax or the use tax if the food service company is the agent of the medical institution.
6. Sales by food service companies of meals to a medical institution, for use in furnishing
   meals and other food to patients as part of their medical care, are retail sales subject to
   the sales or the use tax if the food service company is merely under contract with the
   medical institution and is not the agent of the medical institution.
   FOR ADDITIONAL INFORMATION CONCERNING SALES BY, AND
   PURCHASES FROM, SUPPLIERS (INCLUDING INFORMATION ON RESALE
   CERTIFICATES), SEE SECTIONS C AND D BELOW.
   Meals and Other Food Served or Sold to Employees, Visitors and Others (Cafeterias,
   Canteens, Snack Bars, Etc.)

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1. Sales by a medical institution of meals and other foods, other than those furnished to
patients as part of their medical care, are retail sales subject to the sales or the use tax.

2. Sales of meals and other foods by a food service company as the agent of a medical
   institution, other than those furnished to patients as part of their medical care, are retail
   sales of the educational institution subject to the sales tax or the use tax.
3. Sales of meals and other foods by a food service company, other than those furnished to
   patients as part of their medical care, are retail sales of the food service company subject
   to the sales or the use tax.
   FOR ADDITIONAL INFORMATION CONCERNING SALES BY, AND
   PURCHASES FROM, SUPPLIERS (INCLUDING INFORMATION ON RESALE
   CERTIFICATES), SEE SECTIONS C AND D BELOW.
   C. EDUCATIONAL AND MEDICAL INSTITUTIONS AND FOOD SERVICE COMPANIES
   MAKING BOTH RETAIL SALES AND WITHDRAWING FOR USE FROM THE SAME
   STOCK OF GOODS:
   As stated in the discussion, educational and medical institutions and food service companies, as
   described in the facts, that 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 or medical
   institution must have a substantial number of retail sales. To comply with this provision,
   educational and medical 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 or
   medical institution. See SC Regulation 117-174.82.
   D. SUPPLIERS SELLING UNPREPARED FOOD PRODUCTS TO EDUCATIONAL AND
   MEDICAL INSTITUTIONS AND TO FOOD SERVICE COMPANIES:
   Educational and medical institutions and food service companies, as described in the facts, are
   purchasing unprepared food products at retail for use in preparing meals under a board plan.
   Therefore, businesses selling unprepared food products to these institutions and companies
   should sell such products at retail, unless the purchaser provides them a Form ST-8A - Resale
   Certificate. Receipt of the resale certificate will allow suppliers to sell these goods at wholesale
   to these educational and medical institutions and food service companies.
   Educational and medical institutions and food service companies, as described in the facts,
   should not provide their suppliers a resale certificate, Form ST-8A, unless they will be re-selling
   the product or are doing so to comply with the provisions of SC Regulation 117-174.82, as
   described in the Section C above.
   SC Revenue Ruling #93-9

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SOUTH CAROLINA DEPARTMENT OF REVENUE

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Chairman

s/T. R. McConnell
T. R. McConnell, Commissioner

s/James M. Waddell Jr.
James M. Waddell, Jr., Commissioner
Columbia, South Carolina
August 4
. 1993

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SUMMARY OF SC REVENUE RULING #93-9
EDUCATIONAL INSTITUTIONS

SITUATIONS

MEALS SERVED UNDER
BOARD PLAN

CASH AND OTHER
SALES

REMARKS

Educational institution (college)
operates its own dining facilities.
A food service company is not
involved.

Sales to, or withdrawals for use
by, the college of the unprepared
food products are retail sales
subject to the tax.

The college is the retailer
and tax is due on the gross
proceeds from the sales. The
unprepared food products
may be purchased tax free.

The college must obtain
a retail license for each
location on campus
where "cash or other
sales" are made.

Educational institution (college)
has an "agency" contract with a
food service company that will
furnish food service to the entire
institution.

Sales to, or withdrawals for use
by, the food service company of
the unprepared food products are
retail sales subject to the tax.

Sales by the food service
company, as agent for the
college, are retail sales
subject to the tax.

The food service
company, as agent, must
obtain a retail license
for each location on
campus where "cash or
other sales" are made.

Educational institution (college)
has a contract with a food service
company to furnish food service to
the entire institution. The food
service company is not an agent of
the college under this contract.

Sales by the food service
company, either to the college or
to the students, are retail sales
subject to the tax.

Sales by the food service
company, either to the
college, the students or
others, are retail sales
subject to the tax.

The food service
company must obtain a
retail license for each
location on campus.

FOR ADDITIONAL INFORMATION CONCERNING SALES BY, AND PURCHASES FROM, SUPPLIERS (INCLUDING INFORMATION
ON RESALES CERTIFICATES), SEE SECTIONS C AND D OF THE REVENUE RULING - #93-9.

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HOSPITALS, INFIRMARIES, NURSING HOMES AND SIMILAR INSTITUTIONS
SITUATIONS

MEALS AND OTHER FOOD
SERVED TO PATIENTS AS
PART OF MEDICAL CARE

MEALS AND OTHER
FOOD SERVED OR
SOLD TO EMPLOYEES,
VISITORS AND OTHERS

SALES IN
CANTEENS, SNACK
BARS, ETC.

The hospital, etc. (medical
institution) operates its own
dining facilities. A food service
company is not involved.

Sales to, or withdrawals for use
by, the medical institution of the
unprepared food products are
retail sales subject to the tax.

The medical institution is the
retailer and tax is due on the
gross proceeds from the
sales. The unprepared food
products may be purchased
tax free.

The medical institution
is the retailer and tax is
due on the gross
proceeds from the sales.
The unprepared food
products may be
purchased tax free.

The hospital, etc. (medical
institution) has an "agency"
contract with a food service
company that will furnish food
service to the entire institution.

Sales to, or withdrawals for use
by, the food service company of
the unprepared food products are
retail sales subject to the tax.

Sales by the food service
company, as agent for the
medical institution, are retail
sales subject to the tax.

Sales by the food
service company, as
agent for the medical
institution, are retail
sales subject to the tax.

The hospital, etc. (medical
institution) has a contract with a
food service company to furnish
food service to the entire
institution. The food service
company is not an agent of the
college under this contract.

Sales by the food service
company, either to the medical
institution or to others, are retail
sales subject to the tax.

Sales by the food service
company, either to the
medical institution or others,
are retail sales subject to the
tax.

Sales by the food
service company are
retail sales subject to the
tax.

FOR ADDITIONAL INFORMATION CONCERNING SALES BY, AND PURCHASES FROM, SUPPLIERS (INCLUDING INFORMATION
ON RESALES CERTIFICATES), SEE SECTIONS C AND D OF THE REVENUE RULING - #93-9.

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