Recently, a Washington State appellate court addressed whether a taxpayer qualified as a wholesaler subject to the wholesaling B&O rate or a food service management operator subject to B&O tax under the “services and other business activities” classification. For the tax years at issue, the wholesaling rate was 0.484 percent, while the services rate was 1.5 percent. The taxpayer’s argument was that it was a wholesaler because it sold tangible personal property in the form of meals to colleges, which were then resold by the schools to students and others who had purchased meal plans. There was no dispute that the taxpayer transferred food to the schools, which was then provided to diners. However, the Department of Revenue argued that, based on the taxpayer’s contracts, it was not reselling meals, but was being compensated for the service of assisting the schools with operating and managing their meal plans.
The appeals court agreed with the Department. To be considered a wholesaler, the taxpayer had to transfer tangible personal property to the schools for consideration. The court determined that the taxpayer was not receiving consideration for the transfers of meals, but was receiving consideration for the service of helping the schools operate and manage their meal plans. The court found it significant that the taxpayer was compensated based on the number of patrons with various types of meal plans, rather than the actual number of meals transferred. The taxpayer was compensated weekly regardless of whether any meal plan patron actually received a meal. The court noted that when the taxpayer sold meals at retail to dining patrons without meal plans, that was a separate revenue source subject to B&O at the retailing tax rate, as provided for in the Department regulation defining food service contractor. Please contact Michele Baisler at 206-913-4117 with questions on Aramark Educational Services, LLC v. State of Washington, Dep’t of Revenue.