New sales tax for public institutions: will daycare centers and schools soon have to pay “cake tax”?

Created: 05/24/2022, 1:00 p.m

By: Magdalena von Zumbusch

Could sales tax soon be levied on bake sales at school?

©Panthermedia/IMAGO

"Market-relevant private-law services" from the public sector will be taxed from 2023 - will school and daycare cake sales soon be taxable?

Munich – The sales tax law has been in effect since 2017, taxing market-based actions by the public sector more strictly.

Since most day-care centers and schools are publicly owned, harmless additional earnings from cake sales, which are popular at school celebrations, could also fall under the new regulation.

Will cakes at summer festivals and Christmas bazaars soon become more expensive?

New sales tax law from 2023 mandatory for everyone: cake sales from daycare centers and schools affected?

The new regulation is not that new, as can be read in the legislative material of the Bundestag: § 2b UStG, which was amended in 2015 and came into force in 2017, states that legal entities under public law must pay sales tax for certain services.

The law will not apply to everyone until 2023, so far there have been transitional and exception rules.

According to the provision, the publicly run facilities have entrepreneurial characteristics according to § 2 Para. 1 UStG if they independently carry out a "sustainable activity" to generate income.

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In order to answer the question of whether cake sales at school and daycare celebrations will be taxable in the future and should no longer be sent “unabridged” to the respective school or daycare, two questions must be clarified: Are the sales really made by the school or daycare? (or rather by a parents' council, support association or a "student company")?

And if so, is the school or day care center really active in the market in a way that is comparable to a private company?

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Sales tax on cake sales: does the school or day care center act at all?

In the case of the parents' council, the respective day-care center or school is responsible for tax purposes, contrary to what is often assumed: it is considered a dependent part of the facility.

In the case of cake sales by the parents' association, the school would be responsible.

The situation is different in the case of support associations and the rarer case of companies run by students: both are considered to be their own entrepreneurs and have to pay sales tax if they appear on the market and (e.g. by selling cakes at a café operated on school grounds) exceed certain income limits.

In this case, however, the respective school or day care center does not have to pay.

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Sales tax on bake sales: Are bake sales as "professional" as private companies?

It is now also crucial whether the appearance on the market is as "professional" as that of a private company and whether the revenue limits of the VAT Act are not exceeded.

In particular, if the activity is carried out over several years, if it is carried out extensively (i.e. how many days a year/ how many hours per day), if a separate business premises is operated and, above all, very important: if The activity is not limited to members of the institution, as the Hof tax office explains on its information page.

If an offer is only aimed at members of the institution, it cannot be assumed that it will appear on the market.

When selling cakes at daycare and school festivals, parents and other visitors who are not “members” of the school or daycare are regularly addressed with the offer.

It then depends on the other criteria, i.e. whether the sale as a whole is similar to that of a private company.

This can probably only be seen as such in exceptional cases, for example when cake sales are operated by a permanent school café or when an Advent stand at a Christmas market is operated by the parents' council of a school or daycare center or similar exceptional cases.

Isolated cake sales at school or daycare celebrations, which are aimed at members and those around them, are therefore spared from the tax increase.

Incidentally, some popular hobbies also fall under the Value Added Tax Act.

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