95-0314 to 95-0320 and 95-0479

Sales Tax

Signed 2/22/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

XXXXX, :

XXXXX, )

XXXXX, : FINDINGS OF FACT,

XXXXX, ) CONCLUSIONS OF LAW,

XXXXX, : AND FINAL DECISION

XXXXX, )

XXXXX, :

) Appeal Nos.

Petitioners, : 95-0314 95-0315

) 95-0316 95-0317

vs. : 95-0318 95-0319

) 95-0320 95-0479

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. Petitioners are generally licensed by the Utah Department of Health as medical facilities and are classified as Hospitals.

4. Each of the Hospitals generally provide at least three meals daily for its patients.

5. The Hospitals do not generally itemize meal costs or charge patients separately for meals provided in the Hospital. Rather, the Hospital invoices list a general daily rate for hospital stays. These invoices are sent to the patients after his/her Hospital stay has ended.

6. Most patients generally rely upon private insurance, Medicare or Medicaid to satisfy portions of the bill.

7. The Hospitals purchase food in bulk quantities that the Hospital=s dietary staff prepares and provides as meals to the Hospitals= patients.

8. The food suppliers have generally imposed Utah sales tax on the food purchases the Hospitals have made.

9. There is no discount from the daily rate charged if a patient misses or skips a meal, or eats more or less than the normal amount.

10. Although some Hospital patients require special diets, there is no discount or extra charge made for special meals.

11. The Hospital patients are generally given choices concerning entrees, beverages, side dishes, etc. These choices do not affect the daily rate charged.

12. No separate charges are made or collected from the patients each time they eat a meal at the Hospitals.

13. The Hospitals have not charged or collected sales tax from patients on Hospital stay charges.

14. Family members of patients and other visitors are allowed to eat in the Hospital cafeterias. These individuals pay for these meals on a meal-by-meal basis. The Hospitals have collected and remitted, or agree that they should have collected and remitted, sales tax on meals sold in their cafeterias to family members and visitors.

15. Doctors and other employees are allowed to eat at the Hospitals. The Hospitals typically provide these meals free of charge to the doctors and staff. Typically, the Hospitals pay sales tax on purchases of food used to provide these meals. Petitioners do not contend that any tax paid on food used to prepare these meals should be refunded.

APPLICABLE LAW

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

The following sales and uses are exempt from the 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 Asale.@

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 Asales 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 in the instant case 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 no subsequent sale occurred and 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.)