Louisiana Rules that Food Ingredients Purchased by Nursing Home Are Exempt as Sales for Resale

At a glance

• The main takeaway: The Louisiana Board of Tax Appeals ruled that a nursing home’s purchase of food ingredients to prepare and serve meals to its residents qualifies under the sales for resale exemption. 
• Assess the impact: While there are a variety of situations where property can be purchased for resale even though it is not separately itemized, it does not mean that simply stating that the cost of an item is factored into the overall price is enough to make a successful argument.
• Take the next step: Aprio’s State and Local Tax (SALT) team can analyze your sales tax situation to determine whether you have a viable refund claim and can make exempt purchases under the sale for resale exemption. 

Schedule a free consultation today to learn more!

The full story:

The state sales tax system is structured so that sales tax is imposed on a taxable transaction where the purchaser is the ultimate consumer (or end user) of the taxable good or service purchased. The idea is to prevent a pyramiding of sales tax whereby the sales tax that a retailer paid to purchase a product is then factored into the price it charges to customers on which sales tax will also be paid. This concept forms the basis for many of the typical sales tax exemptions that states provide, such as the “sale for resale” and the purchase of manufacturing machinery exemptions.

To effectively claim that a purchase is exempt as a “sale for resale,” the buyer must certify that it will re-sell the item (the subsequent sale doesn’t necessarily have to be a taxable sale). Generally, the definition of a “sale,” for sales tax purposes, is the transfer of title or possession for consideration. The main takeaway from this definition is that the item purchased for resale most be re-sold “for consideration.” Thus, giving an item away for free or providing it as part of a nontaxable service transaction may make such item ineligible for purchase as an exempt sale for resale.

However, there are instances where property may be purchased for resale by a business even though the business does not separately charge a customer for such item. For example, back in 2018, we reported on an Ohio Supreme Court decision that concluded that the Cincinnati Reds could purchase tax free promotional items that it gave away to fans who attended certain games.

In the case of nursing homes

Recently, the Louisiana Board of Tax Appeals (BTA) issued an opinion addressing whether the purchase of food ingredients used to prepare and furnish meals in nursing homes to residents could be exempt as a sale for resale.[1] The Parish[2] argued that the food purchases were not exempt since the nursing home facilities are not selling a meal since their residents are not directly charged for the meal.

The nursing homes (Taxpayers) are licensed by the state and are required to provide their residents with meals under state regulations. As part of the overall care, the nursing homes contract with their residents to provide three meals a day. The residents are billed in advanced on a monthly basis for a lump sum that includes all the nursing home services provided. However, the cost of meals is not itemized on the invoice and pricing does not vary based on the number of meals or amount of food consumed. All meals are prepared and consumed on the Taxpayers’ premises. The Taxpayers filed refund requests for the taxes paid on ingredients that were purchased and used to prepare the meals, but the Parish denied the requests.

Unpacking the ruling

The purchase of these items by the nursing homes could only be exempt as a sale for resale if the nursing homes are considered to be selling the meals to their residents. As such, the first consideration is what constitutes a sale. Louisiana defines a “sale” as:

[A]ny transfer of title or possession, or both, exchange, barter, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property, for a consideration, and includes the fabrication of tangible personal property for consumers who furnish either directly or indirectly, the materials used in fabrication work, and the furnishing, preparing or serving, for a consideration, of any tangible personal property, consumed on the premises of the person furnishing, preparing, or serving such tangible personal property.[3]

Based on the underlined language above, the BTA determined that the use of the ingredients to prepare the meals for residents that were consumed on the premises would meet these requirements and be considered a sale as long as there was “consideration.”

In addressing the issue of consideration, the BTA explained that the “absence of separate itemization of the meals is not fatal” to proving consideration and that “a sale can occur without a set price so long as the transaction is supported by some type of consideration.” The BTA was convinced that the facts show that the cost of the meals was factored into the price charged to the residents for nursing home services.  It noted that Medicare and Medicaid prohibit nursing homes from itemizing food on invoices, and that regardless of whether they are itemized, the sale of meals to the residents is exempt from sales tax.  Accordingly, the BTA concluded that the nursing homes could purchase the food ingredients as exempt sales for resale and were entitled to their refunds.

The bottom line

As this case illustrates, there may be situations where property can be purchased for resale even though it is not separately itemized on an invoice to a customer. However, just stating that the cost of the item is factored into the overall price charged to customers may not, by itself, be enough to make a successful argument.  

Aprio’s SALT team has experience with these issues and can analyze your particular situation to determine if you may be able to make exempt purchases under the sale for resale exemption and if you have a viable refund claim. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

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[1] Camelot of North Oaks, LLC, et al. v. Tangipahoa Parish School System, Sales and Use Tax Division, La. B.T.A. Docket No. L0 1474, 03/14/24.

[2] In Louisiana, Parishes are separate taxing authorities from the State and may administer their taxes independent of the Louisiana Department of Revenue. Further, they may interpret state exemptions differently or even create their own sales tax ordinances.

[3] La. R.S. 47:301(12) (emphasis added).