Response
April 29, 1998
Request
Letter
April
6, 1998
Re: Request for Advisory Opinion with Regard
to Ensure Sales by County Government Agencies
Dear
Ms. Rees:
Pursuant to your recent
communications with NAME and NAME of the Bureau of COMPANY A, this letter is our
formal request for an advisory opinion and policy analysis/clarification of the
Utah State tax laws with regard to government entities. Specifically, throughout the State of Utah
are twelve county government Area Agencies on Aging (AAA) which are
tax exempt. However, some of these agencies are purchasing the Ensure food
supplement and reselling the product to senior citizens at cost or pennies
above cost.
The
AAA' s are certainly not making a profit on these sales. However, they are not paying sales
taxes
when making Ensure purchases nor are they charging sales tax when selling the
product to
the
elderly. Many of their customers are
not members of the AAA nor are they receiving any
other
services from the AAA.
Ensure Sales Scenario: It is our understanding that since the AAA's are
non-profit government agencies they are not required to pay sales tax when
purchasing the Ensure products for their clients. However, we would like
clarification as to whether the AAA's
must charge sales tax when selling the Ensure product at their cost or slightly
above cost to: a) their elderly clients? b) any elderly customer? or c) anyone
under age 60 who is purchasing for an elderly family member?
Congregate Meals Scenario: The AAA's are also providing some congregate meals
at the
Senior
Citizen Centers at no charge other than a voluntary donation with a suggested
donation
amount
of $2. It is our understanding that some seniors pay less or nothing at all.
There is no
sales
tax collected for these contributions. However, if you or I (or anyone under the age of 60)
walk
in and ask if we can eat there, we are required to pay $3.50 for the meal. They charge this
as
the funding they receive does not cover those under age 60. No sales tax is
charged to us. Our
questions
with regard to this practice are: a) does the AAA need to charge sales tax to seniors
making
a voluntary contribution; and b) does the AAA need to charge sales tax to those
under 60 who pay $3. 50 for the same meal? Does it make a difference that the
sales to those under age 60 are infrequent and not done in the normal course
of business?
Transportation Services Scenario: The AAA's also provide transportation
services to the
elderly.
Such services include transportation to and/or from medical/dental appointments or to
and/or
from the Senior Center. Suggested donations are $1.00 each way; however, since
it is a
voluntary
contribution, some pay $1.00, others pay less or nothing at all. The
question under
this
scenario is whether the AAA must collect sales tax on the money received in
exchange for the transportation services.
Senior
Citizens' Center Board Activities.
A. Ceramics Class Scenario: One of the Senior Centers
holds ceramics classes as an ongoing activity for elderly citizens. The Center
owns a kiln, but does not have molds and therefore purchases greenware and
paint which it then sells to the
seniors at cost. They also charge a
nominal fee for use of the kiln. There is no charge for the classes themselves.
Are they required to collect sales tax for the materials when selling them
at cost? If not, how is this different than selling the Ensure product at cost?
B. Line-Dancing
Scenario:
Some of the AAA's also provide line-dancing activities sponsored by the Senior
Citizens' Board two or three times per
week. The sponsors bring their own equipment, CD's or tapes and provide
some dance instruction. They have a box for voluntary donations with no
suggested donation amount. Should
sales tax be withdrawn from the contributions and paid to the State Tax
Commission?
One
AAA is planning on modifying its operations with regard to Ensure sales. We
would like to know whether these planned modifications would exempt the
AAA from charging sales tax. The planned operations are as follows:
Only
seniors over age 60 are eligible for Ensure (which is currently the practice as well).
There
could be hardship cases that meet exceptions (and since these agencies also
provide
some
"Adult Services", this would not be out of line with their intent).
In
order to receive Ensure through the AAA Senior Nutrition Program, the
participant will be required to complete the following:
1. A
one-page demographic questionnaire.
2. A
nutrition screening.
Determined to be at moderate to
severe risk of malnutrition, based on
the screening score.
4. A
signed note from their physician that has informed him/her that they are wanting to subsist on Ensure
for one or more of their meals, or in
between meals (whatever the case). (They are not requiring a prescription but the AAA wants the personal physician to
be notified that there is a possible
risk of malnutrition involved with their patient who may need further nutrition intervention. This seems
to be a good way to get the senior in
touch with his/her personal physician.) The physician is to notify the AAA if
there is a concern with the food supplement, especially if the person is on a
modified diet regime due to chronic or acute
disease.
5. The
AAA will offer nutrition education/counseling and inform the participant of the
date(s) of the next classes by their registered dietitian.
Also,
instead of selling Ensure at cost, the Tooele AAA Director is considering going back to a
confidential
contribution system in order to qualify for the USDA federal reimbursement which
we
understand will exempt them from charging sales tax in the same way they
currently handle
congregate
meals. We would like your concurrence and/or advisory opinion on that
assumption as well.
Should
you require additional information or clarification concerning this request,
please call
NAME
at #####.
Sincerely,
NAME
April
29, 1998
NAME
ADDRESS
CITY,
STATE ZIP
RE: Advisory
Opinion - Sales Tax on Goods and Services Provided by Area Agencies on Aging
Dear
NAME,
We have received your request for an
advisory opinion concerning the collection of sales tax on fees charged by the
twelve Area Agencies on Aging (agencies) that are located in Utah. You have specified a number of situations
in which these agencies collect fees, and we will address each of these fees
separately. But first, we want to make
some observations about the unique situation of these agencies, and how this factor
influences our decision.
These agencies are political
subdivisions of the state and receive the exemption from sales tax for most purchases
made by the agencies. Utah Code Ann.
§59-12-104(2). However, sales
made by the state or its political subdivisions do not receive the exemption
from sales tax. The agencies at issue
here make sales to its clients in two different manners. The first type is an ordinary sale where the
agency sets a price, and the client or customer must pay that price to receive
the product. There is no question sales
tax is due on these sales.
The second type of sale is unique
because it combines some elements of a sale and some elements of a government
service. For many of the taxable goods and
services provided by the agencies, the agencies do not set a price and collect
it from its clients as described above.
Instead, the agencies first post a suggested price for the good or
service, then allow each customer or client to anonymously and voluntarily pay
as much as he or she wishes. The client
will receive the service even if nothing is paid. This anonymous, voluntary payment system is mandated both by
state and federal law and is used to help pay for the services or goods, with
reimbursements then coming from both the state and federal governments. In a situation such as this, where the law
mandates a voluntary, anonymous payment system and the client may receive the
service or good without payment, the Commission does not consider this situation
a sale for sales tax purposes. In these
limited circumstances, the agencies have provided a government service, not
sold a taxable product.
However, please be aware that if any
person is required to pay the posted fee, even for a service or product that is
provided through the voluntary, anonymous payment system, then that fee is
subject to sales tax. Apparently, this
situation most often arises when a non-client accompanies an agency client to a
congregate meal. While the agency
client is allowed to make a voluntary, anonymous payment, the non-client is
required to pay the posted fee for the meal.
In this situation, the voluntary, anonymous payment is not subject to
sales tax, but the required payment is.
In response to each scenario you presented,
we offer as follows:
Ensure Diet Supplement
Sales. The current practice of
setting a price and selling the Ensure diet supplement only to those who pay
for it is a taxable sale. Should the
agencies modify its distribution method to a voluntary, anonymous payment
system, where the client would receive the product whether any payment is made,
no taxable transaction would occur.
Congregate Meals. Meals provided under the voluntary,
anonymous payment system are not taxable.
However, anyone under the age of 60 is required to pay $3.50 for the
meal. This latter required fee is
subject to sales tax, even if the charge is infrequent.
Transportation Services. Services provided under this voluntary,
anonymous payment system are not taxable.
Ceramics Class. There is no charge for the classes, but the
agencies do charge a nominal fee for use of the kiln and requires its clients
to purchase the ceramic supplies at cost.
As none of these fees are collected using the voluntary, anonymous
payment system, all these charges are subject to sales tax.
Line-Dancing Activity. Admission fees paid under this voluntary,
anonymous payment system are not taxable.
The Commission is aware that sales
tax has not been collected in the past on some of these taxable
transactions. However, the Commission
also recognizes that the unique payment and reimbursement programs used by the
agencies led to understandable confusion as to the taxability of these limited
number of sales. Therefore, under these
specific circumstances, the Commission will not issue an assessment on the
prior taxable sales, but does require the agencies to remit sales tax on any
taxable sale made subsequent to this advisory opinion.
Please contact us if you have any
other questions.
For the Commission,
Joe
B. Pacheco
Commissioner
^^