Sales of Food and Beverages by Exempt Organizations

State and Local Tax

By Jennifer Koehler

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On February 20, 2009 the Pennsylvania Department of Revenue reissued Legal Letter Ruling No. SUT-04-011. The letter ruling specifically addressed the sale of food and beverages by a church during a community festival. The sales by the church were deemed taxable because the church sold to the public and was in competition with other vendors who were required to collect sales tax.

This is just one example of when a food sale by a nonprofit organization is subject to sales tax. Generally, the sale of food and beverages by a school or church is exempt from tax if the sales are in the ordinary course of the activities of the school or church. For example, the sale of a dinner would be in the ordinary course of a church’s activities if the meal is sold to church members by a church organization in connection with a church function. However, if the church (or school) sells selected foods to the public in competition with other organizations or businesses selling similar items, the activities of the church (or school) will be deemed unrelated business activities and the church (or school) will need to charge and collect sales tax on the sales.

The taxability of sales of food and beverages is outlined and explained by PA Reg. 60.7. The regulation provides guidance on the taxability of food and beverage sales by churches, schools, exempt organizations and other entities. Examples of taxable and exempt sales are included in the regulation and are particularly useful when applied to the activities of churches, schools and exempt organizations. A few that are worth noting include the following:

  • If a church offers catered meals to the public on a regular basis, regardless of whether or not the meals are serviced on church premises, the church is engaged in an unrelated trade or business and the sales of food and beverages are subject to sales tax. (PA Reg. Sec. 60.7(b)(6)(i)(D)).
  • If a church caters wedding receptions, funeral luncheons and anniversary dinners at the church in connection with member or nonmember church weddings, funerals and anniversaries, the church is engaged in an unrelated trade or business and the sales of food and beverages are subject to sales tax. (PA Reg. Sec. 60.7(b)(6)(i)(E)).
  • If a fire company, an exempt organization, sells fried fish dinners each Friday that are consumed on the premises, the fire company is engaged in an unrelated trade or business and the sale of fish dinners would be subject to sales tax. (PA Reg. Sec. 60.7(b)(7)(iii)).

Especially during this time of year when Friday night fish fries are occurring on nearly every block, exempt organizations should take a few minutes to review their food sales and determine if the sales are to their members in the ordinary course of their activities (generally exempt from sales tax) or if they are operating as an eating establishment and selling to the public (generally subject to sales tax).

Schneider Downs provides accounting, tax and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh and Columbus.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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