Tax Type
Retail Sales and Use Tax
Description
Food and grocery items; Catering; Fund-raising sales; Supplies
Topic
Taxability of Persons and Transactions
Date Issued
02-20-1998
February 20, 1998
Re: Section 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer"), for the period August 1993 through July 1996.
FACTS
The Taxpayer is a restaurant and caterer that seeks adjustments to an audit conducted by the department for certain sales and purchases which the Taxpayer believes were erroneously assessed. The Taxpayer is in disagreement with the assessment of sales tax on fundraising sales, banquet room rentals and on janitorial and other labor charges billed with banquet room rentals. The Taxpayer contests the assessment of use tax on purchases of disposable table cloths and skirts, the purchase of a steam cleaner, and rentals of tents.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-930 (copy enclosed) states that "[r]etail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable." Sales price is defined in Code of Virginia 58.1-602 (copy enclosed) as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever."
Fundraisers
The Taxpayer conducts fundraising sales to assist nonprofit organizations, churches, and similar organizations in raising funds. The Taxpayer sets up a mobile kitchen at a site such as a shopping mall or busy intersection and provides personnel to set up and cook its food products. The organization participating in the fundraiser supplies volunteers to assist the Taxpayer and sell the food. A typical fundraiser is held for one day on a weekend.
Rather than collecting sales tax from the final consumers of the food, the Taxpayer bills sales tax to the organization participating in the fundraiser. The sales tax is computed on the Taxpayer's cost for the food sold. Other expenses incurred by the Taxpayer related to the fundraiser such as travel expenses, labor, propane usage, and equipment rental are also billed to the participating organization, but not taxed. The invoice shows the computation of the net profit from the fundraiser which is split between the Taxpayer and the participating organization. The auditor held the gross receipts from the fundraisers minus amounts on which the tax was collected from the participating organizations taxable.
The Taxpayer maintains that it was instructed by department personnel during a previous audit to handle its fundraisers in this manner. The Taxpayer suggests that one of the department's auditors helped design the form used by the Taxpayer to bill the participating organizations.
Based on the information provided, it is clear that the Taxpayer was incorrectly billing the participating organizations for sales tax on the cost of the food. "Retail sale" is defined in Code of Virginia 58.1-602 as "a sale to any person for any purpose other than for resale ..." "Sale" is defined in the same section as "any transfer of title or possession, or both, ... of tangible personal property ..." In this case, a retail sale occurs when the final consumer takes possession of the food. The organization participating in the fundraiser does not receive title or possession to the food; thus, the sales tax should be charged to the final consumer on the sales price of the food. The auditor's treatment of the fundraiser sales in the audit was correct. However, it appears the Taxpayer relied on erroneous information from the department which generated this portion of the assessment. For this reason, l will waive the assessment made on fundraiser sales. On a prospective basis, the Taxpayer should begin collecting sales tax on its retail sales of food to the final consumers during fundraiser sales.
Disposable Table Covers and Skirting
As part of its catering services, the Taxpayer provides disposable table skirts and table covers. The Taxpayer listed a separate charge for the table covers and skirts on customers' invoices and computed applicable sales tax on the charge. The auditor held the purchase of the table skirts and covers taxable as items used and consumed by the Taxpayer to provide its catering services. The Taxpayer claims the table covers and skirts are similar to the disposable items discussed in Tax Bulletin 92-10 (11/4/92, copy enclosed) and are exempt purchases for resale.
Title 23 VAC 10-21 0-930(F) states that "items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption." The department also issued Tax Bulletin 92-10 which discusses the department's policy on disposable items furnished with meals. Title 23 VAC 10-210-930(F) and Tax Bulletin 92-10 both state that items such as paper doilies, paper placemats, plastic silverware, and similar items furnished with meals and disposed of after use by only one customer are considered part of the meal and may be purchased under the resale exemption.
The disposable table covers and skirts used by the Taxpayer are placed on tables and serve the same purpose as tablecloths. The disposable table covers and skirts are not used by one customer and then disposed. Rather, a number of customers may sit at a particular table and eat their meal. When finished, the customers do not dispose of the table covers and skirts. The resale exemption for disposable items applies to items provided to retail food customers for their own use and convenience. In this case, the table covers and skirts are used by the Taxpayer for its convenience. For this reason, the disposable table covers and skirts are items used and consumed by the Taxpayer and are similar to the taxable items listed in Tax Bulletin 92-10. The assessment of tax on the Taxpayer's purchases of table covers and skirts is correct.
Banquet Room Cleaning Charges
Unless specifically exempt by law, any services provided in connection with the sale of tangible personal property are taxable. The definition of sales price cited above is the basis for this policy. The enclosed copy of P. D. 89-167 (5/22/89) explains the department's longstanding policy on charges for labor and services made by caterers in connection with the provision of food services. Services and labor for preparing food, serving the food, setting up the site, and cleaning are all services contracted for by the client and are taxable because they are provided in connection with the sale of tangible personal property. Thus, sales tax is charged on the total charge for catering an event. Based on our longstanding policy, the auditor correctly held the janitorial labor taxable.
Banquet Room Rentals
Both P. D. 89-167 and Tax Bulletin 92-10 state that the total charge for catering an event is taxable. The rental of a banquet room in connection with a catered event is also subject to sales and use tax because it is part of the Taxpayer's total charge for catering services. The banquet room rental charges will remain in the audit.
Occasional Purchase
The Taxpayer maintains the auditor indicated that the purchase of a steam cleaner would be removed from the audit because it was an exempt occasional sale. Title 23 VAC 10-210-1080(C) states that "[a]ny person who purchases an item in a transaction which is deemed an 'occasional sale' shall likewise not be liable for any use tax on such purchase." Based on information provided by the Taxpayer, the purchase of the steam cleaner qualifies for exemption as an occasional sale and will be removed from the audit.
Tent Rentals
The department has addressed the issue of tent rentals in P. D. 93-16 (January 29,1993, copy enclosed). In this letter, a taxpayer rented tents which it provided for catered events at the request of its customers. A separate charge for the tents was billed to the customers and the taxpayer argued that the rental of the tents should enjoy the resale exemption because sales tax was collected from the customers on the rental charges. As P. D. 93-16 explains, the rental of the tents is considered part of the total charge for the catering services provided and is included in the taxable charge billed to the customer.
While the tents may be provided at the customer's request and for the convenience of the customer, the tents are still provided by the caterer as part of the caterer's services. Consistent with P. D. 89-167 and Tax Bulletin 92-10, the tent rentals are taxable to the caterer because the tents are used and consumed in providing catering services. Charges for tent rentals are properly included in the total charge catering services and are subject to sales taxes. The tent rental charges will remain in the audit.
Summary
The fundraiser sales and the purchase of the steam cleaner will be removed from the Taxpayer's audit. The Taxpayer is expected to begin charging and remitting sales tax on the retail sales made in its fundraiser sales. The Taxpayer should not charge sales tax to the organizations participating in the fundraisers.
I understand that the department has no record of receiving your original letter dated December 5, 1996. Because of the delay in responding to the Taxpayer's appeal, l will waive the interest accrued since December 5, 1996, if the Taxpayer pays the revised balance of the assessment within ninety days. The Taxpayer's payment of $**** may be sent to **** in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. If you have any questions, please contact **** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13191S
Re: Section 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer"), for the period August 1993 through July 1996.
FACTS
The Taxpayer is a restaurant and caterer that seeks adjustments to an audit conducted by the department for certain sales and purchases which the Taxpayer believes were erroneously assessed. The Taxpayer is in disagreement with the assessment of sales tax on fundraising sales, banquet room rentals and on janitorial and other labor charges billed with banquet room rentals. The Taxpayer contests the assessment of use tax on purchases of disposable table cloths and skirts, the purchase of a steam cleaner, and rentals of tents.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-930 (copy enclosed) states that "[r]etail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable." Sales price is defined in Code of Virginia 58.1-602 (copy enclosed) as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever."
Fundraisers
The Taxpayer conducts fundraising sales to assist nonprofit organizations, churches, and similar organizations in raising funds. The Taxpayer sets up a mobile kitchen at a site such as a shopping mall or busy intersection and provides personnel to set up and cook its food products. The organization participating in the fundraiser supplies volunteers to assist the Taxpayer and sell the food. A typical fundraiser is held for one day on a weekend.
Rather than collecting sales tax from the final consumers of the food, the Taxpayer bills sales tax to the organization participating in the fundraiser. The sales tax is computed on the Taxpayer's cost for the food sold. Other expenses incurred by the Taxpayer related to the fundraiser such as travel expenses, labor, propane usage, and equipment rental are also billed to the participating organization, but not taxed. The invoice shows the computation of the net profit from the fundraiser which is split between the Taxpayer and the participating organization. The auditor held the gross receipts from the fundraisers minus amounts on which the tax was collected from the participating organizations taxable.
The Taxpayer maintains that it was instructed by department personnel during a previous audit to handle its fundraisers in this manner. The Taxpayer suggests that one of the department's auditors helped design the form used by the Taxpayer to bill the participating organizations.
Based on the information provided, it is clear that the Taxpayer was incorrectly billing the participating organizations for sales tax on the cost of the food. "Retail sale" is defined in Code of Virginia 58.1-602 as "a sale to any person for any purpose other than for resale ..." "Sale" is defined in the same section as "any transfer of title or possession, or both, ... of tangible personal property ..." In this case, a retail sale occurs when the final consumer takes possession of the food. The organization participating in the fundraiser does not receive title or possession to the food; thus, the sales tax should be charged to the final consumer on the sales price of the food. The auditor's treatment of the fundraiser sales in the audit was correct. However, it appears the Taxpayer relied on erroneous information from the department which generated this portion of the assessment. For this reason, l will waive the assessment made on fundraiser sales. On a prospective basis, the Taxpayer should begin collecting sales tax on its retail sales of food to the final consumers during fundraiser sales.
Disposable Table Covers and Skirting
As part of its catering services, the Taxpayer provides disposable table skirts and table covers. The Taxpayer listed a separate charge for the table covers and skirts on customers' invoices and computed applicable sales tax on the charge. The auditor held the purchase of the table skirts and covers taxable as items used and consumed by the Taxpayer to provide its catering services. The Taxpayer claims the table covers and skirts are similar to the disposable items discussed in Tax Bulletin 92-10 (11/4/92, copy enclosed) and are exempt purchases for resale.
Title 23 VAC 10-21 0-930(F) states that "items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption." The department also issued Tax Bulletin 92-10 which discusses the department's policy on disposable items furnished with meals. Title 23 VAC 10-210-930(F) and Tax Bulletin 92-10 both state that items such as paper doilies, paper placemats, plastic silverware, and similar items furnished with meals and disposed of after use by only one customer are considered part of the meal and may be purchased under the resale exemption.
The disposable table covers and skirts used by the Taxpayer are placed on tables and serve the same purpose as tablecloths. The disposable table covers and skirts are not used by one customer and then disposed. Rather, a number of customers may sit at a particular table and eat their meal. When finished, the customers do not dispose of the table covers and skirts. The resale exemption for disposable items applies to items provided to retail food customers for their own use and convenience. In this case, the table covers and skirts are used by the Taxpayer for its convenience. For this reason, the disposable table covers and skirts are items used and consumed by the Taxpayer and are similar to the taxable items listed in Tax Bulletin 92-10. The assessment of tax on the Taxpayer's purchases of table covers and skirts is correct.
Banquet Room Cleaning Charges
Unless specifically exempt by law, any services provided in connection with the sale of tangible personal property are taxable. The definition of sales price cited above is the basis for this policy. The enclosed copy of P. D. 89-167 (5/22/89) explains the department's longstanding policy on charges for labor and services made by caterers in connection with the provision of food services. Services and labor for preparing food, serving the food, setting up the site, and cleaning are all services contracted for by the client and are taxable because they are provided in connection with the sale of tangible personal property. Thus, sales tax is charged on the total charge for catering an event. Based on our longstanding policy, the auditor correctly held the janitorial labor taxable.
Banquet Room Rentals
Both P. D. 89-167 and Tax Bulletin 92-10 state that the total charge for catering an event is taxable. The rental of a banquet room in connection with a catered event is also subject to sales and use tax because it is part of the Taxpayer's total charge for catering services. The banquet room rental charges will remain in the audit.
Occasional Purchase
The Taxpayer maintains the auditor indicated that the purchase of a steam cleaner would be removed from the audit because it was an exempt occasional sale. Title 23 VAC 10-210-1080(C) states that "[a]ny person who purchases an item in a transaction which is deemed an 'occasional sale' shall likewise not be liable for any use tax on such purchase." Based on information provided by the Taxpayer, the purchase of the steam cleaner qualifies for exemption as an occasional sale and will be removed from the audit.
Tent Rentals
The department has addressed the issue of tent rentals in P. D. 93-16 (January 29,1993, copy enclosed). In this letter, a taxpayer rented tents which it provided for catered events at the request of its customers. A separate charge for the tents was billed to the customers and the taxpayer argued that the rental of the tents should enjoy the resale exemption because sales tax was collected from the customers on the rental charges. As P. D. 93-16 explains, the rental of the tents is considered part of the total charge for the catering services provided and is included in the taxable charge billed to the customer.
While the tents may be provided at the customer's request and for the convenience of the customer, the tents are still provided by the caterer as part of the caterer's services. Consistent with P. D. 89-167 and Tax Bulletin 92-10, the tent rentals are taxable to the caterer because the tents are used and consumed in providing catering services. Charges for tent rentals are properly included in the total charge catering services and are subject to sales taxes. The tent rental charges will remain in the audit.
Summary
The fundraiser sales and the purchase of the steam cleaner will be removed from the Taxpayer's audit. The Taxpayer is expected to begin charging and remitting sales tax on the retail sales made in its fundraiser sales. The Taxpayer should not charge sales tax to the organizations participating in the fundraisers.
I understand that the department has no record of receiving your original letter dated December 5, 1996. Because of the delay in responding to the Taxpayer's appeal, l will waive the interest accrued since December 5, 1996, if the Taxpayer pays the revised balance of the assessment within ninety days. The Taxpayer's payment of $**** may be sent to **** in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. If you have any questions, please contact **** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13191S
Rulings of the Tax Commissioner