The Illinois Department of Revenue recently released a General Information Ruling regarding the taxability of meals in prison. More specifically, it addressed whether meals sold to prisoners by a not-for-profit organization are taxable. Though just over a page long, the department’s guidance highlights the diversity of sales tax treatment across the states.
The ruling determined that these sales of food are subject to tax, because though made by a qualifying charitable organization, sales to inmates are only exempt when made by the prison itself. A reading of the exemption statute, however, reveals a surprising basis for the decision. Illinois’ charitable organization exemption applies to an entity “organized and operated exclusively for charitable, religious or educational purposes … to the extent of sales by such [organization] to its members, students, patients or inmates.” By stating that correctional facilities are eligible for this exemption, the department appears to imply that prisons are organized and operated exclusively for a “charitable, religious or educational purpose.”
Illinois is not alone in offering sales and use tax exemptions to prisons. Last year, Virginia lawmakers approved a similar exemption, but only for sales made by a sheriff. The law directly resulted from a sheriff-run meal program that had not been collecting sales tax. The sheriff behind the bill stated that the provision “legalizes what was already a widespread practice in jails throughout Virginia—not paying sales taxes on such transactions,” in an interview with the Virginian-Pilot. Interestingly, Alabama has a sheriff-specific exemption too, though theirs covers sales to, rather than by, a sheriff.
It is not clear whether these states, and others that offer similar exemptions, extend applicability to private prisons as well. That issue may be looming given the rise of private prisons across the country. A Bureau of Justice Statistics publication reported that 91,338 out of 1,330,337 total state inmates were kept in private prisons in 2015 (the most current year available).
While statutes addressing sales tax in prisons are generally limited to meals, some states also legislate the tax treatment of other tangible personal property. Michigan controversially rolled back their exemption for sales of non-edible tangible personal property to inmates in 2012. The motivation appeared to be split between a desire to increase revenue and a call for prisoners to pay their fair share. A fiscal impact report released before the vote projected a $500,000 annual gain in revenue from this tax on commissary sales to Michigan’s prison inmates.
Another point to consider is the feasibility of taxing these sales. For many prisoners, funds for purchases come from family or friends, given the obvious limitation on their ability to earn money. Though most states require all able-bodied inmates to work during their sentence, wages vary dramatically. Georgia notably does not offer compensation for labor yet imposes sales tax on all transactions within its prisons. In Iowa, wages reportedly range from $0.56 to $0.87 per hour, according to the Des Moines Register.
There does not appear to be much consistency across the states on this issue, but that very fact leaves policy makers and taxpayers alike plenty of room for debate.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states impose sales tax in prison?
Get a free trial to Premier State Tax Library , a comprehensive research service that delivers deep, unique analysis and time-saving practice tools to help practitioners make well-informed decisions.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)