Tax Type
Retail Sales and Use Tax
Description
Meals furnished to non-restaurant employee; Hotel
Topic
Taxability of Persons and Transactions
Date Issued
03-15-1994
March 15, 1994
Re: §58.1-1821 Appeal: Retail Sales and Use Tax
Dear********
This will reply to your correspondence seeking correction of a retail sales and use tax assessment for ************(the "Taxpayer").
FACTS
The Taxpayer, a full service hotel and restaurant, was audited for the period July, 1988 through June, 1991, and held liable for the tax on meals furnished to non-restaurant employees.
The Taxpayer contends that the full service hotel and restaurant are so closely related that the staff of both divisions regularly assist in the operation of each division. Thus, meals provided to employees whose responsibilities involve the restaurant as well as the non-restaurant areas should be exempt from taxation.
The Taxpayer also seeks waiver of the penalty on the basis that it only fell 5% below the needed compliance ratio.
DETERMINATION
Employee Meals: The exemption provided by Va. Code §58.1-609.3(7) pertains specifically to meals furnished to restaurant employees as part of wages. Meals provided by employers to other than restaurant or food service operation employees are subject to the tax. Therefore, the auditor was correct in holding the Taxpayer liable for the tax in this instance.
Penalty: While the Taxpayer fell only 5% short of the needed compliance ratio of 50%, I nonetheless must deny a request for waiver of the penalty. Penalty on second or subsequent audits will not be waived for other than exceptional mitigating circumstances.
It is well established that hotels and motels are subject to the tax on all purchases of tangible personal property for use in their operations (see Virginia Regulation 630-10-48). Despite this, use tax compliance by the Taxpayer was still less than 50% for the audit period. As the Taxpayer has presented no evidence why it did not adequately comply with the use tax reporting requirements, I find no basis to abate the penalty. I would point out that the issue with the meals was not included in determining the compliance ratio or assessed penalty as this was deemed a new issue that was not addressed in the Taxpayer's prior audit.
It should be noted that higher levels of compliance will be expected in future audits by the department. Virginia Regulation 630-10-80, readopted effective July 28, 1993, now requires penalty to be applied on third and higher generation audits unless compliance ratios meet or exceed 85%.
Accordingly, the assessment is correct and is now due and payable. You will shortly receive an updated bill with interest accrued to date which must be paid in full within 30 days to avoid additional interest and collections actions.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/5935B
Rulings of the Tax Commissioner