06-6 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Meals sales and catering services to public institutions of learning are exempt from tax

Topic

Exemptions

Date Issued

01-19-2006

January 19, 2006

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer"), for the period April 2002 through March 2005. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a catering business and contests the tax assessed on charges for catering services. The catering services at issue are provided to nonprofit college and university clients and are paid for through college or university funds. The Taxpayer contends that these transactions should be exempt from the retail sales and
use tax.

In addition, the Taxpayer requests that the compliance penalty assessed in connection with the failure to remit use tax on fixed assets be removed from the assessment.

DETERMINATION

Catering Services to Nonprofit Colleges and Universities

Prior to July 1, 2004, Va. Code § 58.1-609.4 2 (i) provided a sales and use tax exemption for "[t]angible personal property for use or consumption by a college or other institution of learning, including food purchased for free distribution at the facilities of the college or other institution of learning . . . ."

Effective July 1, 2004, the General Assembly enacted a new process by which nonprofit organizations obtain sales and use tax exemptions. Virginia Code § 58.1609.11 provides that any nonprofit organization that held a valid exemption certificate on June 30, 2003, retains its exemption until the current exemption expires. The exemption for nonprofit colleges and universities under Va. Code § 58.1-609.4 2 (i) was grandfathered under Va. Code § 58.1-609.11 until such exemption expires July 1, 2007.

Based on the foregoing, sales of meals and catering services to public institutions of learning are exempt from the retail sales and use tax. Accordingly, the assessment will be adjusted to remove the Taxpayer's sales of catering services to nonprofit colleges and universities.

Compliance Penalty

The Taxpayer was assessed tax on fixed assets purchased for its use or consumption in Virginia. The Taxpayer failed to pay sales tax to its vendors or remit use tax to the Department for these items. The Taxpayer was assessed a compliance penalty in regard to its failure to pay the tax on these purchases.

Virginia Code § 58.1-635 mandates the application of penalty to tax deficiencies. Title 23 of the Virginia Administrative Code (VAC) 10-210-2032(A) states that "[t]he application of penalty to audit deficiencies is mandatory and its application is generally based on the percentage of compliance determined by computing the dealer's compliance ratio." With regard to third generation audits, the regulation states that penalty will generally be applied unless the taxpayer's compliance ratio meets or exceeds 85% for use tax. For the audit at issue, the Taxpayer's use tax compliance ratio is 0%. Because the Taxpayer failed to meet the required 85% use tax threshold for a third generation audit, the compliance penalty was properly applied.

Title 23 VAC 10-210-2032 also states that the application of penalty to audit deficiencies will not be waived on second and subsequent audits for "other than exceptional mitigating circumstances." The Taxpayer has not presented evidence of exceptional mitigating circumstances that warrant waiver of the penalty. Accordingly, the Taxpayer's request for abatement of the compliance penalty is denied.

CONCLUSION

An updated bill will be sent to the Taxpayer that reflects the removal of the charges for catering services. The bill will include accrued interest on the remaining balance. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of the bill. The Taxpayer should remit its payment to: Virginia Department of Taxation, 3600 West Broad Street Suite 160, Richmond, Virginia 23230, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.

The Code of Virginia sections and regulation cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/56119i

Rulings of the Tax Commissioner