The Texas Comptroller of Public Accounts recently ruled that subsidies were taxable when paid to a third-party food service provider for cafeteria maintenance and operation. The subsidy was a reimbursement for the cost of conducting business. It covered the service provider's operational costs. This included the cost of food, paper, beverages, wages, supplies, taxes, and administrative expenses. Tax applied to the subsidy because Texas imposes tax on the furnishing, preparation, or service of food, meals, and drinks. Tax applied to the sales price of the transaction, which was the total amount of consideration the service provider received from the client. This included administrative fees and subsidies that helped pay for meals.
Note that Texas previously excluded from tax subsidies paid to food service operators, but that exclusion was repealed September 15, 2006.