94-2220

Sales

Signed 2/22/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

XXXXX, XXXXX, :

XXXXX, )

XXXXX, : FINDINGS OF FACT,

XXXXX, ) CONCLUSIONS OF LAW,

XXXXX, : AND FINAL DECISION

XXXXX, )

XXXXX, :

XXXXX, ) Appeal Nos.

XXXXX, : 94-2220 94-2221

XXXXX, ) 94-2222 94-2223

XXXXX, : 94-2224 94-2225

XXXXX, ) 94-2226 94-2227

XXXXX, XXXXX, : 94-2228 94-2229

XXXXX, XXXXX, ) 94-2230 95-0116

XXXXX, : 95-0117 95-0118

XXXXX, ) 95-0119 95-0120

XXXXX, : 95-0121 95-0122

XXXXX, ) 95-0123 95-0124

XXXXX, : 95-0493 95-0494

XXXXX, XXXXX ) 95-0495 95-0496

XXXXX, : 95-0592 95-0680

XXXXX, ) 95-0925 95-0926

XXXXX, :

)

Petitioners, :

)

vs. :

)

CUSTOMER SERVICE DIVISION OF :

THE UTAH STATE TAX COMMISSION,)

Respondent. ) Tax Type: Sales & Use

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for an Initial Hearing on XXXXX. Based on the request by both parties, the Initial Hearing was converted into the Formal Hearing. Present and representing Petitioner was XXXXX, Attorney at Law. Present and representing Respondent was XXXXX, Assistant Attorney General. Administrative Law Judge Gail Reich heard the matter for and on behalf of the Commission.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is sales tax.

2. Petitioners request a refund for sales tax paid on the wholesale purchase of food which is ultimately used to provide meals to patients.

3. With the exception of XXXXX, the Petitioners are licensed by the Utah Department of Health as nursing care facilities with specific designations as either a ANursing Care Facility@ or ASmall Health Care Facility.@ XXXXX is a Nursing Care Facility designated as a ASpecialty Hospital Psychiatric.@

4. The Nursing Care Facilities= admission agreements generally state that the facilities agree to furnish room and board to inpatients. The room and board charge is a fixed amount per day that is generally billed monthly.

5. Each of the Nursing Care Facilities provides at least three meals daily for its inpatients.

6. The Nursing Care Facilities do not separately itemize meal costs or charge separately for meals provided to the resident patients. Rather, the facilities= invoices list a fixed daily rate for room and board.

7. Most patients generally rely on Medicare, Medicaid or private insurance to satisfy all or portions of the bill.

8. The Nursing Care Facilities purchase food in bulk quantities that the dietary staff prepares and provides as meals.

9. The food suppliers have generally imposed Utah sales tax on the Nursing Care Facilities= food purchases.

10. There is no discount from the fixed daily room and board rate charged if an inpatient misses or skips a meal, or eats more or less than the normal amount.

11. Although some Nursing Care Facility inpatients require special diets, they are not billed separately or differently than any other inpatients.

12. The Nursing Care Facility inpatients generally are not given options concerning meal plans (how many meals served, quality or quantity of food) while in the facility and do not select these meals from a menu. They are given only minor choices concerning beverages, side dishes etc. Some Nursing Care Facilities do provide a selection of an alternate entree. The choices of side dishes, beverages, entrees, etc. do not affect the daily rate charged.

13. Separate charges per meal are not made to or collected from the inpatients each time they eat a meal at the Nursing Care Facilities.

14. The Nursing Care Facilities have not charged or collected sales tax on the fixed daily room and board amount.

15. At XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX and XXXXX, no employees or individuals other than inpatients, are allowed to eat at the Nursing Care Facilities= dining rooms.

16. At XXXXX, XXXXX,XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, XXXXX, and XXXXX, family members, visitors and employees are allowed to eat at the Nursing Care Facility. With the exception of XXXXX, family members, visitors and employees pay for these meals on a meal-by-meal basis by purchasing a meal ticket at the time the meal is served. The Nursing Care Facilities agree that sales tax has been collected or should be collected on these sales of meals to family members, visitors or employees. At XXXXX, meals are provided to family members, visitors and employees at no charge. XXXXX does not contend that any tax paid on food used to prepare meals provided free of charge to family members, visitors and employees is subject to refund.

APPLICABLE LAW

Utah Code Ann. '59-12-104(14) provides in pertinent part, as follows:

The following sales and uses are exempt from taxes imposed by this chapter. . .

(14) sales of meals served by:

(a) public elementary and secondary schools;

(b) churches, charitable institutions, and institutions of higher education, if the meals are not available to the general public; and

Administrative Rule R865-19S-61 entitled AMeals Furnished Pursuant to Utah Cod Ann. '59-12-104" provides in pertinent part:

(A.)(1.) By specific exemption, the following meal sales are exempt from taxation: . . .

(b.) Inpatient meals provided at medical or nursing facilities. Tax must be paid on the purchase price of food by nonexempt medical or nursing facilities.

(B.) Where no separate charge or specific amount is paid for meals furnished but is included in the membership dues or board and room charges; the club, boarding house, fraternity, sorority, or other place is considered to be the consumer of the items used in preparing such meals.

ANALYSIS

Petitioner reads Utah Code Ann. '59-12-104(14) as providing sales tax exemption in regards to the meals provided to inpatients. Petitioner then asserts that by Rule 61, in the second sentence of (A)(1)(b), the Commission circumvents the legislative statutory exemption by pushing the imposition of sales tax up the wholesale - retail chain to the wholesale purchases.

Respondent asserts that Utah Code Ann. '59-12-104(14) does not apply to the meals provided to the inpatients because they do not constitute a 'sale.'

Petitioners= response is that the statute does not require a sale, and if it does, the term should be broadly interpreted.

The answer to this dispute begins in the first three words of subsection 14 of '59-12-104. It refers to 'sales of meals.' Recognizing an awkward sentence structure, it is nonetheless clear from this opening phrase that the statute contemplated the exemption only for sales. The parties have stipulated that the providing of meals to patients involves neither a separate charge nor a specific billing amount stated for the meals. The Commission has long relied on this criteria to determine whether a sale exists. Commission Rule 61 in Section (B) clearly states that Awhere no separate charge or specific amount is paid for meals furnished but is included in. . .the board and room charges; the club, boarding house, fraternity, sorority or other place is considered to be the consumer of items used in preparing such meals.@

The Commission agrees with Petitioner that, if the providing of meals to the patients constituted a sale, then the second sentence of Rule 61 (A)(1)(b) is inappropriate in its imposition of sales tax at the wholesale level. However, that situation does not arise here since the Commission agrees with Respondent=s position that the facts in this case do not constitute a sale of a meal to the patients. Thus, the issue of sales tax exemption does not arise in reference to the transaction between the Petitioners and the patients. Based on Rule 61, Section(B), the Petitioners were the consumers of the food items purchased from the wholesaler and used in preparing the meals for the inpatients and, as such, properly paid tax.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that Petitioners are not entitled to a refund of the sales tax paid for the purchase of food items used in preparing meals for inpatients since the Petitioners were the ultimate consumers under Section B of Commission Rule 61. It is so ordered.

DATED this 22nd day of February, 1996.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

NOTICE: You have twenty (20) days after the date of a final order to file a Request for Reconsideration with the Commission. If you do not file a Request for Reconsideration with the Commission, you have thirty (30) days after the date of a final order to file a.) a Petition for Judicial Review in the Supreme Court, or b.) a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5(P) and Utah Code Ann. ''59-1-601(1), 63-46b-13 et. seq.)