North Carolina in 2014: No More Exemption for Food Sold to Students at Colleges and Universities
- Sales Tax News
- Dec 12, 2013 | Gail Cole
Update, 6.25.14: Sales tax on prepaid meal plans did not take effect on January 1, 2014, after all. It takes effect July 1, 2014.
Life is about to get a little more expensive for North Carolina college students. Effective January 1, 2014, an exemption for prepared food sold to college students in institutions of higher education will be repealed.
Beginning January 1, 2014, “sales tax applies to the sales price of prepared food sold to or made available for consumption by a college student..., notwithstanding that an institution of higher education receives funds from or on behalf of a college student for a prepaid meal plan prior to January 1, 2014.” Anyone who is not a student who purchases a meal at an institution of higher education must already pay sales tax.
Sometimes colleges and universities act as “the retailer that makes retail sales of prepared food to college students” and sometimes the retailer is a third party food service. Agreements between institutions of higher learning and third party service providers should stipulate which party is the retailer responsible for collecting and remitting the state sales tax and any applicable local sales taxes.
A North Carolina Department of Revenue Directive explains in detail the exemption being repealed and all related tax consequences. Examples are provided:
- When a student purchases a prepaid meal plan and a third party food service provider is the retailer, “The sales price of the prepared food sold at retail by the third party food service provider to the college student per day and billed to the institution … is the sales price of the prepared food subject to the 4.75% general State and applicable local and transit rates of sales tax. The amount paid to the institution for the prepaid meal plan on behalf of the student does not have a direct correlation to the sales price of the prepared food sold by the third party food service retailer to a student.”
- When the institution of higher education is the retailer based on the language of the agreement between the institution and a third party service provider, then the institution “is required to collect and remit the 4.75% general State and applicable local and transit rates of sales tax of prepared food to each student.”
Use tax on food and prepared food
Any institution of higher education not connected to the University of North Carolina that provides food and meals to its students as part of tuition, and whose students are not given an option to purchase a prepaid meal plan, must either pay sales tax when it purchases food from vendors or “pay use tax on the purchase price of such items directly to the Department on its sales and use tax returns filed with the Department.”
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