School Cafe

Are College Meal Plans Taxable or Not?

Many colleges and universities require students living on-campus to purchase a meal plan. The school typically contracts with an outside company to provide the meals, which students then pay for using their meal plan. But are such transactions subject to sales tax?

The Colorado Supreme Court recently addressed this question.

The specific dispute before the Court involved the City of Golden, Colorado, and Sodexo America, a well-known food service company that provides contractual dining services to the Colorado School of Mines (CSM), which is based in Golden. The City levies a 3-percent sales tax. Following a 2014 audit, the City determined Sodexo was liable for approximately $234,000 in unpaid sales tax on the sales of meals to meal-plan students at CSM.

Sodexo challenged the City’s decision in court. Although a trial judge sided with the City, an intermediate appeals court ruled in Sodexo’s favor. The Colorado Supreme Court then agreed to review the matter.

Colorado Supreme Court: Campus Dining Plan Meals Not Subject to City’s Sales Tax

The Court ultimately agreed with Sodexo and the intermediate appeals court. Justice William W. Hood III, writing for the Court, said there were two types of transactions at issue here. The first was CSM’s sale of meal plans to the students. The second was Sodexo’s sale of meals to CSM. The latter sale, Hood said, was a wholesale transaction not subject to the City of Golden’s sales tax.

“Sodexo didn’t directly charge the meal-plan students,” Hood explained. Rather, CSM billed the students each semester for the cost of the meal plan. CSM, in turn, paid Sodexo a fixed amount monthly for each meal served. Sodexo therefore had no responsibility (or ability) to take action against a student who failed to pay CSM for his or her meal plan.

In other words, Hood said, there was never a taxable “sale” that took place between Sodexo and the meal-plan student. The sale occurred when the student purchased the meal plan, not when they swiped their card at the dining hall to use one of their allotted prepaid meals. The students “didn’t provide any consideration to Sodexo for the meals,” Hood said.

Ruling Does Not Affect Cash Sales

It is worth noting the Supreme Court’s ruling only covers students who purchase meals at a campus dining hall via a prepaid meal plan. It does not apply to a student, or anyone else, who purchases food or beverages from the same dining hall using cash or their own credit card. Indeed, even prior to this litigation, Sodexo collected and remitted sales taxes on cash and credit sales to the City.

Canada Considers “Netflix Tax” Again

streamingReport: Canadian Government Fails to Collect $169 Million in Sales Taxes Annually on Digital Goods & Services

Canada loses approximately $169 million annually in sales tax revenue, according to a recent report from the nation’s interim auditor general. These losses are the result of Canadians failing to pay taxes on digital purchases from foreign vendors. As a result, the auditor general’s office noted Canadians often pay more for domestic digital goods than their foreign counterparts.

Interim AG: Most Canadians Do Not Pay Their Own Sales Tax on Foreign Purchases

Interim Auditor General Sylvain Ricard submitted a series of five performance audits to the Parliament of Canada on May 7. One of these audits focused on the taxation of e-commerce. The audit noted the rapid rise of e-commerce, particularly with respect to “digital products” for music and video, creates “challenges for assessing” the federal goods and services tax (GST) and the harmonized sales tax (HST).

 

Domestic sellers of digital goods and services are required to collect GST and HST from individual consumers and remit those payments to the government. But foreign vendors with no “permanent establishment” in Canada are not required to make such collections under federal law. This does not mean that foreign sales are exempt from taxation. Rather, if an individual consumer’s total purchases of foreign digital goods results in a GST or HST tax liability of more than $2, it is that consumer’s responsibility to fill out a form and pay the applicable tax.

 

In practice, most Canadian consumers simply ignore this duty. According to Ricard, while approximately two-thirds of Canadian adults “purchased digital products from both foreign and domestic vendors between July 2017 and June 2018,” only 524 people filed GST or HST forms on those purchases. And the Canada Revenue Agency (CRA) only has “limited authority” to ensure compliance.

 

For instance, Ricard noted, while the United States government requires all payment processors to provide their financial data to the Internal Revenue Service, the CRA lacks a similar ability to collect such third-party information without first obtaining a court order. This, in turn, reduces the CRA’s ability to “detect and deter non-compliance.”

 

The costs of this non-compliance are not insignificant. Ricard’s office estimated the total GST losses for the 2017 fiscal year alone was $169 million. And given the increasing role of cross-border e-commerce in Canada’s economy, Ricard recommended the CRA “implement mechanisms to track, monitor, and report the number of compliance activities it conducts to manage the risk of non-compliance.”

Cross-Party Opposition to Any “Netflix Tax”

But it may not be that simple. Enforcing sales tax collection on foreign digital goods, especially popular U.S.-based services like Netflix, is unpopular with Canadian politicians. During the 2015 federal election, then-Prime Minister Stephen Harper released an ad saying his Conservative Party was “100 per cent against a Netflix tax,” according to a recent report in the Toronto Star. Harper’s rival, Liberal Party leader and current Prime Minister Justin Trudeau, also came out against efforts to require Netflix and other non-Canadian vendors to collect the GST and HST.

province flags

Some Canadian provinces, however, are taking a harder line. The auditor general’s report noted the British Columbia provincial government has independently “reached an agreement with a major foreign accommodation sharing platform” to “voluntarily collect the provincial sales tax (PST) and remit it directly to the government.” Meanwhile, the Quebec National Assembly has passed its own legislation requiring foreign businesses to “register for, collect, and remit sales taxes,” regardless of whether they have a “permanent establishment” in Quebec or Canada.

 

As federal law currently stands, according to Ricard, the CRA lacks the “legislative authority or flexibility” to follow either British Columbia or Quebec’s example. And with the next federal election expected later this year, there may be little incentive for any of the major political parties to pursue the issue in the short-term.


Looking for Canadian Sales Tax Rates for your business?  Zip2Tax has easy, fast downloadable tables.  Or look here for general tax rates by province.


 

Maine Legislators Consider “LOST”

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Maine Legislators Consider Authorizing Local-Option Sales Taxes

Although most U.S. states permit their local governments to collect certain types of sales taxes (in addition to the statewide tax), about a dozen state still do not. One such state is Maine, which currently assesses a statewide sales tax of 5.5 percent only. But there is a renewed effort in the state’s legislature to authorize local-option sales taxes (LOST), which could provide an additional source of revenue for cash-strapped municipalities.

Bills Would Allow Municipalities to Target Sales Tax Increases During Tourist Season

There are several LOST bills currently pending before the Maine Legislature. One such bill, known as LD 65, would allow municipalities to impose a local sales tax after obtaining approval in a voter referendum. The referendum question would need to include not only the proposed tax rate, the “purposes for which the revenue will be used,” and any months when the LOST would not be collected.

This last item means that the municipality would not have to collect its portion of the sales tax year-round. Rather, localities could focus tax collection efforts on the summer months when Maine typically attracts a large number of tourists. According to the Portland Press Herald, roughly 36.7 million people visited Maine in 2017, spending approximately $6 billion throughout the state.

A second proposal, LD 1254, would allow for a LOST of up to 1 percent on restaurant meals and lodging. Like LD 65, LD 1254 would require a referendum and allow localities to specify the months in which the local sales tax would apply. But while LD 1254 is restricted to “prepared food or the value of rental of living quarters” to travelers, LD 65 permits collection of local sales tax on any item that is already subject to Maine’s statewide sales tax.

Conservative, Liberal Activists Challenge LOST Proposals

Not surprisingly, many conservative anti-tax groups oppose the LOST bills. Jim Fossel, a former staffer for Republican U.S. Sen. Susan Collins, wrote in an editorial for the Press Herald that “the very concept of a local-option sales tax is fundamentally flawed.” Fossel argued it was a “competitive advantage” for Maine not to have such taxes, and that “towns and cities across Maine ought to continue doing what they can to cut costs and constrain spending.”

What’s interesting is that some liberal activists agree with Fossel–at least with respect to opposing the LOST. Sarah Austin of the Maine Center for Economic Policy, which describes itself as a “progressive voice” for “Maine working families,” wrote on the organization’s website, argued legislators should reject LD 65 and LD 1254 as it would disproportionately benefit those “communities heavily reliant on the tourism industry” while “doing little–or even nothing–for others.”

Austin noted that 10 municipalities in Maine generated 45 percent of the state’s meals and lodging revenue, yet only contained 16 percent of the state’s permanent population. And even a general LOST that was not limited to meals and lodging, such as the one proposed by LD 65, would hit poorer Maine residents the hardest. For this reason, Austin said a sales tax increase limited to meals and lodging would be preferable, but only if implemented as part of more comprehensive tax reform, including higher income tax rates for the “wealthiest and profitable corporations.”

 

 

phone apps

Georgia House Goes a Step Further to Collect Sales Taxes

Georgia House to Require “Marketplace Facilitators” like Uber, Airbnb, and Ebay to Collect Sales Taxes

In the wake of the U.S. Supreme Court’s June 2018 decision in South Dakota v. Wayfair, Inc., a number of states have quickly moved to require out-of-state Internet-based sellers to collect and remit sales taxes on in-state purchases. For example, a new law took effect in Georgia on January 1, 2019, mandating retailers collect that state’s 4 percent sales tax for all online sales.

Now, Georgia legislators may go a step further and compel “marketplace facilitators” like eBay, Uber, and Airbnb to collect state sales tax on transactions completed by their users.

House Bill 276

On March 4, the Georgia House of Representatives passed House Bill 276 by a vote of 158-6. HB 276 proposes to expand the definition of what businesses qualify as “dealers” required to collect and remit sales tax. Specifically, the bill states anyone who “[a]cts as a marketplace facilitator to facilitate retail sales” in excess of $100,000 per year is now a dealer.

A “marketplace facilitator,” in turn, is any business that provides services designed to “facilitate a retail sale that is taxable” under Georgia law.

This includes but is not limited to the following:

  • providing any physical or electronic infrastructure to to bring “purchasers and marketplace sellers together”;
  • transmitting or communicating any offers (or acceptance of offers) between purchasers and sellers;
  • processing and collecting payments from purchasers on behalf of sellers;
  • taking orders or reservations on behalf of sellers; or
  • providing advertising, marketing, or other promotional services.

To put this in practical terms, HB 276 would likely apply to the following situations:

  • A resident of Macon, Georgia, purchases a computer on eBay from an out-of-state seller. HB 276 requires eBay to collect and remit the Georgia sales tax on this purchase.
  • A group of friends in downtown Atlanta arrange for a ride via the Uber app. HB 276 requires Uber to collect and remit the sales tax on this sale.
  • Out-of-state tourists arrange to stay in a private home in Augusta by making a reservation using Airbnb. Now Airbnb must then make sure to collect and remit the sales tax.

In other words, this Bill shifts the burden of dealing with sales taxes away from the individual sellers; many of whom may be too small to register with Georgia authorities; and places it on the companies that “facilitate” transactions with the purchasers.

GA Stands to Receive Millions from Online Sites

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Do Employer Sponsored Cafeterias Have to Collect Sales Tax?

Missouri Supreme Court Says Operator of Federal Reserve Cafeteria Must Collect Sales Tax

Most states apply some form of sales tax to the purchases of meals and drinks. But what if a business or public employer maintains an employee cafeteria? Does the cafeteria operator need to charge sales tax on the meals and drinks sold to the employees?

The Missouri Supreme Court recently confronted these questions in a case, Myron Green Corporation v. Director of Revenue, that also involved the interaction of federal and state law. The plaintiff in this case, Myron Green Corporation, is a private company that provides food services to clients in Kansas City and several other Midwestern cities. One of Myron Green’s customers was the Federal Reserve Bank of Kansas City.

FRB of Kansas City contracted for employee cafeteria.

cafeteriaThe Bank contracted Myron Green to run its in-house cafeteria which is restricted to Bank employees due to security needs. But, if cleared to enter the Bank, visitors could also purchase food and drink at the cafeteria.

Under Myron Green’s contract, Bank employees could pay for their purchases using their identification badges. The Bank would then deduct the purchase amounts from the employee’s next paycheck. Employees and visitors could also pay for purchases in cash, although roughly 80 percent of all sales were paid for using payroll deduction.

Actually, the bank paid Myron Green a lump-sum every two weeks using its own credit card. The Bank then reimbursed itself from the amounts deducted from individual employees. The Bank further subsidized the overall cost of food such that the employees and other customers paid below-market prices at the cafeteria.

Under federal law, Federal Reserve banks are exempt from paying all state and local taxes (aside from property taxes). Myron Green believed this federal exemption meant it did not have to collect Missouri sales tax on any products sold in its cafeteria at the Kansas City bank.

Sales are to employees, not the bank itself, thus taxable.

The Missouri Department of Revenue determined that all the cafeteria’s cash and payroll-deduction sales were made to individual employees, not the bank itself, and the exemption only applied to the latter. After an administrative hearing commissioner upheld the Department’s determination, Myron Green sought judicial review directly with the Missouri Supreme Court.

Missouri Supreme Court Upholds Determination

In a unanimous decision published on January 15, 2019, the Court agreed with the Department of Revenue and the commissioner’s reading of the law.

First, the Court noted that Missouri law imposes a sales tax any place where “meals or drinks are regularly served to the public.” The Court said there was a difference between a company-owned cafeteria and one maintained by an outside contractor like Myron Green. In a 2003 decision, the Supreme Court said a Missouri company that operated its own employee cafeteria did not need to collect sales tax because the firm’s “main business was not operating company cafeterias.” In contrast, Myron Green’s main business was “operating on-site cafeterias for corporate clients.” And the fact that access to the Federal Reserve building itself was restricted did not matter, as Myron Green’s cafeteria sold food or drink to anyone who had cash, i.e. it “regularly served” the public.

Second, the Court also rejected Myron Green’s argument that the Federal Reserve’s institutional sales tax exemption extended to individual employees. The Bank did not purchase food or drink directly from Myron Green. Rather, Myron Green purchased its own food at wholesale and offered it for resale to individual employees. Even though most Bank employees paid for purchases using their employee IDs, this “merely provided an avenue through which bank employees could pay.”


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