“From Cafeteria Line to Taxable Line Item” – Aramark Corp. v. Harris Clarifies the Sales-Tax Treatment of Contract Food-Service Arrangements in Ohio

1. Introduction

On 18 June 2025 the Supreme Court of Ohio released a set of opinions in its regular Case Announcements. The headline decision among them— Aramark Corp. v. Harris, Slip Opinion No. 2025-Ohio-2114— addresses whether food and beverage sales made by an on-site food-service contractor are taxable “sales of tangible personal property” under Ohio’s sales-and-use tax statutes or nontaxable “personal services.” The Court affirmed the Board of Tax Appeals (BTA) and, in doing so, set a clarified, workable rule for taxpayers and the Ohio Department of Taxation: where consideration for meals is separately stated or reasonably apportionable, the transaction is a taxable retail sale regardless of the form of the food-service agreement. The majority opinion (Fischer, DeWine, Brunner, Deters, and Shanahan, JJ.) therefore upheld the assessment of $3.4 million in sales tax issued to Aramark for its institutional food-service operations at Ohio universities, hospitals, and correctional facilities. Chief Justice Kennedy, joined by Hawkins, J., dissented.

Beyond its immediate fiscal stakes, Aramark will noticeably shape how Ohio businesses draft cafeteria, concession, and managed-services contracts; how the Ohio Tax Commissioner audits those contracts; and how lower courts analyze the “true-object” test when service elements and goods are intertwined.

2. Summary of the Judgment

  • Holding. The Court held that Aramark’s provision of meals under “cost-plus” and “profit-sharing” contracts constitutes taxable retail sales of tangible personal property under R.C. 5739.01(B). The BTA’s assessment was therefore affirmed.
  • Statutory Framework. Ohio imposes sales tax on transfers “for a consideration” of tangible personal property. An exemption exists for “personal or professional services” where any transfer of property is merely incidental. The majority found the true object of the transactions to be the acquisition of meals, not the procurement of cafeteria-management expertise.
  • Dissent. Chief Justice Kennedy argued that the Court’s prior case law requires a holistic approach that considers whether the consumer (e.g., a university student on a meal plan) already paid sales tax at the point of use or whether the institution rather than the end user was the purchaser, rendering the contract one for services.
  • Outcome. Assessment affirmed; no remand; no change to statutory-damages question because the taxpayer had paid the assessment under protest during the administrative appeal.

3. Analysis

3.1 Precedents Cited and Their Influence

  1. Servomation Corp. v. Bowers, 176 Ohio St. 441 (1964) – The classic cafeteria case holding that vending-machine sales of food are taxable. The majority analogized Aramark’s point-of-sale registers to Servomation’s coin slots: both identify a discrete transfer of taxable property.
  2. Satpute v. House of India, Inc., 148 Ohio St.3d 610 (2016) – Confirmed the “true-object” test in mixed service-and-property contracts. The Court again applied the test, finding that the primary purpose of Aramark’s contracts was the provision of meals.
  3. Cincinnati Microwave, Inc. v. Limbach, 53 Ohio St.3d 79 (1990) – Held that component testing provided for the creation of a product is taxable when the item crosses the taxable threshold. Cited to rebuff Aramark’s argument that back-of-the-house labor transforms the transaction into a service.
  4. Great Lakes Bar Control, Inc. v. Testa, 155 Ohio St.3d 398 (2018) – Clarified that the label chosen by the parties (“management fee,” “license,” “royalty”) is not dispositive. The majority used it to disregard Aramark’s “management fee” language in favor of economic substance.

3.2 Court’s Legal Reasoning

The opinion proceeds in three logical steps:

  1. Characterizing the Transaction. The Court distinguished between (1) “institution-paid” meal services where the institution itself is the consumer, and (2) “pass-through” services where end users pay per item. Because Aramark captured separate line- item consideration for each meal (even if the price floated by cost- plus formulas), it fell into category (2).
  2. Applying the True-Object Test. Citing Satpute, the Court asked whether the purchaser’s paramount object was to obtain meals (taxable) or to obtain operational know-how (nontaxable). The majority emphasized the visibility of the product: “A tray of food, not a binder of managerial best practices, crosses the checkout scanner.”
  3. Rebutting Policy Arguments. Aramark warned of double taxation because end users sometimes also pay sales tax on the retail side. The Court replied that (1) R.C. 5739.01(B) taxes each retail sale in the chain unless resale certificates are issued, and (2) Aramark voluntarily structured its business without resale certificates to institutions, thereby making itself the retailer.

3.3 Potential Impact

  • Contract Drafting. Universities, hospitals, and prisons often sign “cost-plus” or revenue-share deals and historically avoided sales tax by treating them as service contracts. After Aramark, they must structurally separate management fees (nontaxable) from meal consideration (taxable) or obtain and maintain resale certificates.
  • Audit Posture. The Department of Taxation has a clarified roadmap—look for separately stated or apportionable meal charges, then assess tax.
  • Litigation Strategy. Expect fewer fact-intensive “true-object” trials; the inquiry becomes largely documentary: invoices, point-of-sale data, and contract language.
  • Ripple to Allied Industries. Similar blended-value relationships—software-as-a-service with embedded hardware or health clubs selling smoothies—may see renewed audit scrutiny.

4. Complex Concepts Simplified

  • True-Object Test. When a transaction bundles goods and services, Ohio courts ask: “What does the customer primarily want to buy?” If the answer is a physical good, the whole price is taxed (unless fractional segregation is practicable).
  • Cost-Plus Contract. The provider charges the actual cost of inputs (food, labor) plus an agreed-upon margin. Though labeled a “service,” it still yields a per-meal price that can be taxed.
  • Resale Certificate. A form (typically STEC-U in Ohio) that allows a vendor to buy goods tax-free because it will resell them and charge tax to the ultimate consumer. Without one, the vendor is treated as the consumer and must pay tax when acquiring or selling.
  • Statutory Damages in Mandamus. Separate from Aramark, the Court’s State ex rel. Ayers v. Sackett decision reiterated that a prevailing public-records relator is presumptively entitled to $1,000 in statutory damages under R.C. 149.43(C)(2); the Court limited—but did not eliminate—that remedy.

5. Conclusion

The Supreme Court of Ohio’s decision in Aramark Corp. v. Harris gives tax administrators, businesses, and counsel a clearer, more predictable rule: if meals are sold for a price that can be identified, the transaction is a taxable retail sale—no matter how the contract styles the relationship. The opinion synthesizes six decades of Ohio sales-tax jurisprudence, tightening the “true-object” analysis and rejecting attempts to shield meal revenue behind service-contract nomenclature. Going forward, contracting parties must draft with tax visibility, and litigants will have a more binary path when analyzing mixed contracts. In short, what happens on the cafeteria tray no longer stays in the back office accounting ledgers—it is squarely within the taxable line items of Ohio law.