Ruling 93-5, Sales and Use Taxes / Business Management Services

FACTS:

A nonprofit nursing home [hereinafter referred to as "the Home"] has contracted with a management company [hereinafter referred to as "the Company"], under which contract the Company will provide nutrition-related management services in connection with the Home's residents, employees, visitors and guests. These services involve purchasing food and supplies as agent for the Home, preparing meals, distributing meals to floors for final distribution by the Home's staff, retrieving trays from floors after meals, cleaning kitchen equipment, and keeping supplies on the floors stocked and rotated in accordance with the Home's policies. In addition, the Company also prepares and serves food and beverages at the Home's religious, social, business or other catered functions.

ISSUES:

Whether providing nutrition-related management services to a nursing home in connection with its residents directly relates to the home's core business activities such that the services are taxable as business management services under Conn. Gen. Stat. § 12-407(2)(i)(J).

Whether providing nutrition-related management services to a nursing home in connection with its employees and its guests and visitors directly relates to the home's core business activities such that the services are taxable as business management services under Conn. Gen. Stat. § 12-407(2)(i)(J).

DISCUSSION:

Conn. Gen. Stat. § 12-407(2)(i)(J) defines "sale" and "selling" as including "business analysis, management, management consulting and public relations services." "Business management services" are defined by Conn. Agencies Regs. § 12-407(2)(i)(J)-1(e) as meaning "the provision of day-to-day management of a service recipient's personnel with respect to, or the controlling or directing of, all or a portion of the core business activities" of a service recipient, but as not including "controlling or directing activities other than the service recipient's core business activities ...." "Core business activities" are defined in Conn. Agencies Regs. § 12-407(2)(i)(J)-1(h) as "activities directly related to a service recipient's lines of business involving sales of products, property, goods or services to others ...."

The Home's core business is caring for its residents. Providing nutritionally balanced meals to its residents is an activity that is directly related to the Home's line of business. "Directly" means "in close relational proximity ...." Webster, Third New International Dictionary. Thus, the Company's charges for providing nutrition-related management services to the Home are subject to sales and use taxes to the extent the charges relate to meals served to the Home's residents. Conn. Agencies Regs. § 12-407(2)(i)(J)-1(h)(1) also provides, as an illustration of "[activities not generally regarded as directly related to a service recipient's core business activities," "the administration of, and recordkeeping relating to, the service recipient's ... employee food service operations ...." If providing nutritionally balanced meals to the Home's employees is not directly related to the Home's core business activities, then providing nutritionally balanced meals to the Home's visitors and guests cannot be an activity that is directly related to the Home's line of business. Thus, the Company's charges for providing nutrition-related management services to the Home are not subject to sales and use taxes to the extent the charges relate to meals served to the Home's visitors and guests.

RULING:

Providing nutrition-related management services to a nursing home in connection with its residents directly relates to the home's core business activities and, thus, these services are taxable as business management services under Conn. Gen. Stat. § 12-407(2)(i)(J).

Providing nutrition-related management services to a nursing home in connection with its employees and its guests and visitors does not directly relate to the home's core business activities and, thus, these services are not taxable as business management services under Conn. Gen. Stat. § 12-407(2)(i)(J).

LEGAL DIVISION

May 17, 1993