December 28, 2018
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessments issued for the period September 2012 through August 2015. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is an event planner that specializes primarily in weddings. Relying on Title 23 of the Virginia Administrative Code (VAC) 10-210-930, the Department’s auditor determined the Taxpayer to be a caterer. The auditor further determined that the Taxpayer applied a mark-up to the catering and cake charges at issue. As a result, the auditor assessed the sales tax on sales of catering, cakes, services and management fees that were included on the same invoice.
The Taxpayer states that it acts as a liaison between its clients and the vendors who provide a variety of products and services to its clients. The Taxpayer primarily contests the classification of its business as a caterer and contends that the assessment of tax on charges for non-catering related services (hair salon fees, wedding officiant fees and business management fees) is erroneous. Relying on Public Document (P.D.) 89-167 (5/22/89) and P.D. 97-84 (2/19/97), the Taxpayer requests that the tax assessed on the management fees and other non-taxable services be abated.
DETERMINATION
Caterer
Title 23 VAC 10-210-930 A provides, in pertinent part, that “Retail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable.” In accordance with P.D. 89-167, “A caterer is in the business of providing food services to clients. Such services may include not only preparing food, but also delivering, serving, setting up, cleaning, or other services contracted for by the client.”
Based on the cited authorities, I find that the Taxpayer is not a caterer. The Taxpayer is not in the business of providing catering or food services to its clients. The Taxpayer also does not prepare, deliver or serve food related to the wedding planning services that it provides to its clients. Accordingly, the non-catering transactions (hair salon fees, wedding officiant fees and business management fees), which are not related to the sale of food, will be removed from the untaxed sales exceptions.
Service Provider
As a service to its clients, the Taxpayer provides a consolidated statement of vendor charges related to planning and coordinating the wedding event. The Taxpayer states that a variety of goods and services are included on the statements, as well as the business management fee that is charged by the Taxpayer for planning the wedding. The Taxpayer further states that its clients contract with the vendors for the products and services provided. The clients may pay the vendor directly, or the clients may place funds in a retainer with the Taxpayer, and the Taxpayer will distribute funds to the vendors as a service to its clients. In support of these contentions, the Taxpayer furnished a copy of a services agreement entered into with one of its clients and invoices between its clients and vendors that provided products and services to the clients. The Taxpayer also furnished documentation reflecting deposits and distributions of a client’s funds held in retainer.
Virginia Code § 58.1-609.5 1 provides, in pertinent part, that the retail sales and use tax does not apply to “Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made.”
In P.D. 97-84, the taxpayer was a destination management company that specialized in conference and event planning services. The taxpayer provided a wide range of products and services from hotel accommodations and meeting facilities, to tours and food service to its clients. Relying on Virginia Code § 58.1-609.5 1, the Tax Commissioner deemed the taxpayer to be providing a nontaxable service, and the taxpayer was not required to collect the tax on the charges made to its clients. The Tax Commissioner ruled that the true object of the transactions was the provision of a service, and the clients sought the taxpayer’s expertise and creativity in planning a conference or special event and negotiated for various products and services in development of such events.
Virginia Code § 58.1-609.5 1 and P.D. 97-84 are applicable in this instance, as the services provided in the public document are similar to those provided by the Taxpayer. Based on the documentation provided by the Taxpayer, the Taxpayer acts as a conduit between its clients and vendors, and assists its clients in planning a wedding. The Taxpayer’s clients seek the Taxpayer’s expertise in planning and coordinating their events. Additionally, the Taxpayer does not contract with the vendors for the products and services provided for the weddings and events that the Taxpayer assists its clients in planning and coordinating. Rather, the Taxpayer’s clients contract with the vendors, and the Taxpayer distributes funds to the vendors from funds held as a retainer for payment on behalf of its clients. The vendors charge sales tax to the clients and the sales tax is paid to the vendors when the Taxpayer pays the invoices on behalf of the clients.
Accordingly, I find that the Taxpayer is providing a nontaxable service and is not required to charge and collect the sales tax from its clients. The Taxpayer should note, that as a service provider, it is considered the user and consumer of all products and services provided in planning events for its clients. Should the Taxpayer purchase such products or services, the Taxpayer must pay the tax to its vendors based on the cost price, or if the vendor does not charge tax, the Taxpayer must accrue the use tax and remit it directly to the Department.
Based on the facts and applicable authorities, the charges for catering and cakes should also be removed from the audit. In order for the transactions to be removed from the audit, the Taxpayer must provide documentation demonstrating that a mark-up has not been applied to the charges at issue, and the Taxpayer’s clients contract with the vendors to obtain the products and services at issue. The Taxpayer must also provide documentation showing that the clients’ funds are deposited, held as a retainer and subsequently distributed by the Taxpayer on behalf of its clients as payment of invoices issued by the vendors. Finally, the Taxpayer must furnish copies of the services agreements entered into with clients for services provided during the audit period and reflected in the untaxed sales exceptions list.
CONCLUSION
With respect to the non-catering transactions, the audit will be returned to the appropriate field audit staff to make these revisions. Additionally, the audit staff will contact the Taxpayer to schedule an appointment to review the documentation referenced above related to the catering and cake transactions. Once the verification is completed, adjustments to the audit will be made as warranted and the Taxpayer will be issued a revised audit. Additionally, the credit in the audit for sales tax paid on catering and cake charges will be removed from the audit. The credit was given to the Taxpayer for sales taxes that were not charged to or paid for by the Taxpayer.
Once the revisions are complete, a revised bill, with interest accrued to date, will be mailed to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia section, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1068.P