Collect and Remit Sales Tax on Commissary Sales in State Prisons and County Jails

State prisons and county jails should collect and remit sales tax on commissary sales of soft drinks, candy and other taxable food products to inmates.

State prisons and county jails maintain commissaries to provide inmates with personal amenities such as toiletries, cigarettes, food, candy and soft drinks. The Texas Department of Criminal Justice s Institutional Division operates commissaries in all state-run prisons. The four privately run prisons operate their own commissaries.

To purchase items from prison commissaries, an inmate completes an order form. Commissary personnel fill the order for the inmate and charge his trust account using a debit card. Debit cards are issued to all inmates and serve as personal identification cards.

Operating profits from prison commissary sales are deposited in the Educational and Recreational Fund and are used first for the purpose of meeting court-ordered requirements for construction, maintenance, equipment and operations of recreational facilities. Any balances remaining after meeting these requirements may be spent on non-court-related activities. 1

Currently, commissaries are not collecting and remitting tax on the sale of soft drinks, candy and other taxable food products sold to inmates. The commissaries are charging tax on these products when sold to prison or jail employees.

Section 151.314(d)(3) of the Tax Code, states food, meals, soft drinks and candy for human consumption are exempted from the taxes imposed by the chapter if served to a patient or inmate of a hospital or other institution licensed by the state for the care of humans. 2 The Comptroller, in issuing Rule 3.293, Food; Food Products; Meals; Food Service, has interpreted this provision to include the retail sale of soft drinks and candy to inmates in jail and prison commissaries. 3 Attorney General Opinion No. H-639, issued in July 1975, ruled that food and food products (including soft drinks and candy) served in county jails were not taxable when served to inmates. 4 The Attorney General essentially adopted the Comptroller s interpretation in issuing its opinion. In turn, the Comptroller is now basing its interpretation on the Attorney General s opinion.

The opinion, however, only addressed the issue of food and food products, such as soft drinks and candy, being served to inmates. It did not address the issue of those products when sold to inmates.

All state prisons, county jails and other correctional facilities should collect and remit sales tax on commissary sales of soft drinks, candy and other taxable food products sold to inmates.

Section 151.314(e)(3) of the Tax Code should be amended to make soft drinks, candy and other taxable food products taxable when sold to inmates by prison and jail commissaries.

The primary advantage of this change would be an increase in the General Revenue Fund from increased sales tax collections. Making these items taxable would be consistent with the manner in which the items are taxed in the free

world. Treating retail sales to inmates and employees the same would result in simpler accounting procedures for the commissaries and taxpayers.

Another advantage is the benefit to the local economies from an increase in city, metropolitan transit authority and county tax collections.

One disadvantage might be an increase in the price of these items. Current retail prices, however, are substantially lower than those outside the prison system.

Fiscal Impact
The change in the statute would result in a gain to the General Revenue Fund of $2.9 million during the next five years.

Fiscal Gain to the Gain to Change in
Year General Revenue Fund 001 Local Governments FTEs

1994 $420,000 $101,000 0
1995 580,000 140,000 0
1996 604,000 145,000 0
1997 622,000 150,000 0
1998 642,000 154,000 0

1 State of Texas, General Appropriations Act, Seventy-second Legislature, First and Second Called Session (Austin, Texas, 1991), p. I-83.
2 Tax Code Section 151.314 (Vernon 1982), pp. 184-185.
3 Comptroller of Public Accounts, Sales Tax Rule 3.293, Food; Food Products; Meals; Food Service, November 29, 1991.
4 Office of Attorney General, Opinion No. H-639 (1975).