When could restaurants sell meals tax-free to government employees or religious, charitable, and educational organizations?

Plain-English summary

A restaurant could make a tax-free sale to an exempt entity or its authorized agent when it accepted a properly completed exemption certificate in good faith at the time of sale. For a federal, Texas state, or local government purchase, an official purchase voucher could also establish the exemption. Incomplete, facially invalid, or knowingly false certificates could not be accepted.

A government employee's official travel status alone did not exempt a meal. The employee had to buy as an authorized government agent and present an exemption certificate or official purchase voucher; alternatively, the government or its authorized agent could pay the restaurant directly with the required documentation.

Religious, charitable, and educational organizations needed written Texas exempt status, an exempt-purpose purchase, direct payment by the organization or its authorized agent, and a completed exemption certificate. An employee buying food personally had to pay tax.

What this means for you

Restaurants needed to verify who was buying, who was paying, whether the purchase served the exempt purpose, and whether the documentation was valid when the meal was sold.

Common questions

Was a government employee's official travel enough? No.

What documents could support a government meal exemption? A completed exemption certificate or official purchase voucher.

Could a nonprofit employee buy a personal meal tax-free? No.

Could a restaurant question a claimed exemption? Yes, and it could require additional documentation.

Citations and references

• 34 Tex. Admin. Code Rule 3.287 — exemption certificates
• 34 Tex. Admin. Code Rule 3.322(f)(5) and (6) — exempt-organization meal rules cited by the letter
• 34 Tex. Admin. Code Rule 3.163 — hotel-occupancy-tax exemption rule contrasted with sales tax

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9103L1088F11

Original ruling text

March 14, 1991

Dear **:

Thank you for your recent letter, which concerns tax
exemptions for restaurant food purchases made by government employees and tax
exempt entities. In general, a restaurant may make a tax free sale to an exempt
entity or an authorized agent of an exempt entity, provided the restaurant
obtains, in good faith, a properly completed exemption certificate from the
purchaser at the time of sale. As proof of exempt status, a restaurant may
accept either an official purchase voucher or an exemption certificate from a
federal or Texas state or local governmental entity.

A restaurant must collect tax if it cannot accept a
certificate in good faith, or if at the time of sale it has actual knowledge
that the claimed exemption is invalid. A restaurant cannot accept in good
faith a certificate that is incomplete, or that is not valid on its face
(meaning, it does not state a valid exemption). A restaurant is entitled to
make further inquiry and to require additional documentation from the purchaser
before honoring a claimed exemption. (See Rule 3.287, enclosed).

I have restated your specific questions below, with answers:

1. Federal Government: In order for food purchase to be
   exempt, individual must provide proof, such as travel orders, that he is on
   official business. No exemption certificate is necessary. Even if the person
   has an ID card, but has no proof of being on official business, he must pay
   sales tax.

Answer: This is partially inaccurate. A federal government
employee may make a tax free purchase in your restaurant only if he or she is
purchasing the food as an authorized agent of the federal government, and
presents either a properly completed exemption certificate or an official
purchase voucher. A federal employee may not purchase a restaurant meal tax
free on his or her own behalf. There is no sales tax exemption for a federal
employee solely because he or she is traveling on official business. (Rule
3.322 (f)(5) and (6)).

If the federal government or an authorized agent pays the
restaurant directly for the meal, then the restaurant may accept either an
exemption certificate or an official purchase voucher instead of tax.

2. State of Texas employees and local government: Employees
   must always pay sales tax on restaurant charges unless bill is paid for by the
   government agency and an exemption certificate is provided.

Answer: This is partially inaccurate. A Texas state or
local government employee must pay tax on restaurant meals unless he or she is
purchasing the food as an authorized agent of his employer. There is no sales
tax exemption for a Texas state or local government employee solely because he
or she is traveling on official business. (Rule 3.322 (f)(5) and [6]).

If the governmental entity or an authorized agent pays the
restaurant directly for the meal, then the restaurant may accept either an
exemption certificate or an official purchase voucher instead of tax.

3. Religious, charitable, and educational organizations:
   Must always pay sales tax on restaurant charges unless the bill is paid by the
   exempt organization and an exemption certificate is provided.

Answer: This is partially correct. Religious, charitable
and educational organizations that have petitioned for and received from this
agency written notice of exempt status may purchase food tax free in a
restaurant, provided the purchase relates to the exempt purpose of the
organization, the organization or an authorized agent directly pays the
restaurant for the food, and the restaurant is provided with a properly
completed exemption certificate.

An employee of an exempt religious, charitable or educational
organization must pay tax on food purchased on his or her own behalf. (Rule
3.322 (f)(5] and [6]).

Rule 3.322 (Limited Sales Tax, Organizations Exempt) and Rule
3.163 (Hotel Occupancy Tax, Exemptions) have somewhat different requirements,
which may have resulted in some confusion of the two exemptions. These are two
different taxes, subject to different laws and rules.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If you have further
questions, feel free to write or call at 1-800-252-5555. My
direct extension is 3-3889.

Sincerely,

John Christian
Tax Administration