Many colleges and universities require students living on-campus to purchase a meal plan. The school typically contracts with an outside company to provide the meals, which students then pay for using their meal plan. But are such transactions subject to sales tax?
The specific dispute before the Court involved the City of Golden, Colorado, and Sodexo America, a well-known food service company that provides contractual dining services to the Colorado School of Mines (CSM), which is based in Golden. The City levies a 3-percent sales tax. Following a 2014 audit, the City determined Sodexo was liable for approximately $234,000 in unpaid sales tax on the sales of meals to meal-plan students at CSM.
Sodexo challenged the City’s decision in court. Although a trial judge sided with the City, an intermediate appeals court ruled in Sodexo’s favor. The Colorado Supreme Court then agreed to review the matter.
The Court ultimately agreed with Sodexo and the intermediate appeals court. Justice William W. Hood III, writing for the Court, said there were two types of transactions at issue here. The first was CSM’s sale of meal plans to the students. The second was Sodexo’s sale of meals to CSM. The latter sale, Hood said, was a wholesale transaction not subject to the City of Golden’s sales tax.
“Sodexo didn’t directly charge the meal-plan students,” Hood explained. Rather, CSM billed the students each semester for the cost of the meal plan. CSM, in turn, paid Sodexo a fixed amount monthly for each meal served. Sodexo therefore had no responsibility (or ability) to take action against a student who failed to pay CSM for his or her meal plan.
In other words, Hood said, there was never a taxable “sale” that took place between Sodexo and the meal-plan student. The sale occurred when the student purchased the meal plan, not when they swiped their card at the dining hall to use one of their allotted prepaid meals. The students “didn’t provide any consideration to Sodexo for the meals,” Hood said.
It is worth noting the Supreme Court’s ruling only covers students who purchase meals at a campus dining hall via a prepaid meal plan. It does not apply to a student, or anyone else, who purchases food or beverages from the same dining hall using cash or their own credit card. Indeed, even prior to this litigation, Sodexo collected and remitted sales taxes on cash and credit sales to the City.
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