October 13, 2016
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you request clarification on the application of the retail sales and use tax to various catering services scenarios. I apologize for the delay in responding to your request.
Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 addresses services and provides that charges for services are generally exempt from the sales and use tax; however, services in connection with the sale of tangible personal property are taxable. This regulation goes further to provide under subsection B.3 that taxable services include any services in connection with the furnishing, preparing, or serving by a person for a consideration, meals or other tangible personal property. Prior to January 1, 2005, it was the Department's policy that, with the exception of food and related disposable items, a caterer was the taxable user and consumer of all tangible personal property used by them in providing their catering services. Effective January 1, 2005, the Department changed its policy and provided that all tangible personal property purchased by a caterer that transferred to the customer could be purchased tax exempt under a resale exemption certificate for resale to the customer. These items include, but are not limited to, invitations, decorations, flowers, ice sculptures, and similar items.
Effective April 22, 2016, the Department changed its policy regarding meals and catering purchased by nonprofit organizations, churches, and governmental entities. In Virginia Tax Bulletin (VTB) 16-3 (May 2, 2016), state and local governmental entities, nonprofit organizations, and nonprofit churches may use their Retail Sales and Use Tax exemption certificates issued pursuant to Va. Code § 58.1-609.1(4), § 58.1-609.11, and § 58.1-609.10(16) to make exempt purchases of food and meals, as well as certain “taxable services” provided in connection with the provision of meals provided that the state or local governmental entity or nonprofit organization satisfies the Department's new use and consumption test explained in the bulletin. Churches using exemption certificate, Form ST-13A, and federal government entities are not required to satisfy the new use and consumption test in order to purchase meals, catering, and related services exempt of the tax.
Keeping the above in mind, I will address each of the scenarios presented in your letter separately below.
Prepared Meals and Catering
Should the sales tax be assessed on the fee the caterer collects from the customer for wait staff serving food at a catered event?
Yes, the charge to the customer for wait staff is considered a service in connection with the catered event and would be a taxable charge to the customer.
Should the sales tax be assessed on fees charged for the delivery of food? Delivery drivers are independent contractors.
The delivery charge to the caterer would not be subject to the tax. However, if the caterer passes on this charge to the customer, it would be considered a service in connection with the catered event and would be taxable to the customer.
Should the sales tax be collected on a fee for disposable paper products provided to the client by the caterer?
Yes, if the caterer charges the customer a separate charge for disposable paper products, such items are considered a sale of tangible personal property and are taxable.
Does the law require that the tax collected for wait staff and/or delivery driver charges be itemized on an invoice or may all sales tax for both services and food be included on the invoice as one line item?
All sales tax due may be included in one line item on the customers invoice.
Should sales tax be collected for tangible items rented to the client (i.e., serving dishes, table linens, etc.)?
Title 23 VAC 10-210-930 addresses meals and provides that retail sales of meals by restaurants, hotels, caterers, etc. are taxable. This regulation provides that tangible personal property used in preparing and serving meals, such as plates, glasses, silverware, tablecloths, etc. are for the use or consumption by the restaurant or caterer and subject to the tax at the time of purchase, or in this case rental. Therefore, the rental of these items to a customer would not be subject to the sales tax. See P.D. 89167 (5/22/1989).
Should sales tax be collected on the fee that the caterer pays for the rental of a venue/facility that is then passed on to the client as an additional fee?
Virginia Code § 58.1-603.4 imposes the retail sales tax on the “gross proceeds derived from the sale or charge for rooms, lodgings or accommodations furnished to transient as set out in the definition of “retail sale” in § 58.1-602. The definition of “retail sale” in Va. Code § 58.1-602 provides, in part, that a retail sale shall include, “the sale or charge for any rooms or rooms, lodgings, or accommodations furnished to transients . . . by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or any other place in which rooms, lodging, space, or accommodations are regularly furnished to transients for a consideration.”
In this situation, the caterer is not in the business of regularly providing accommodations; therefore, the caterer should pay the sales tax on the rental fee for the venue/facility regardless of the fact that the rental fee is passed on to the customer as an additional fee.
Should sales tax be collected on an administrative fee charged to the client (i.e., a 1018% fee to cover any miscellaneous items or services)?
Yes, this is considered a taxable service charge in connection with the sale of taxable meals and services.
Should sales tax be paid on the amount of a gift certificate?
No. Title 23 VAC 10-210-670 provides that the sale of a gift certificate is not taxable. When the owner of a gift certificate redeems it, the transaction is a taxable sale.
Nonprofit Organizations
What forms must non-profit organizations, schools or governments provide to prove that they have been granted a tax-exempt status for food and beverage purchases and for the rental of tangible goods?
Non-profit organizations (including schools and churches): Department issued exemption letter: Any nonprofit organization, non-profit school, or nonprofit church holding a valid exemption letter issued by the Department of Taxation for its organization pursuant to Va. Code § 58.1-609.11. Non-profit churches may also use Form ST-13A exemption certificate provided they are exempt from income taxation under Internal Revenue Code (IRC) Section 501 (c) (3) or from property taxation under Va. Code § 58.1-3606.
Government Entities: Form ST-12 exemption certificate is for the purchase of tangible personal property for use or consumption by the Commonwealth of Virginia, a political subdivision of the Commonwealth of Virginia, or the United States, including prepared meals, catering, and other services related to the provision of food.
Does the exemption status cover all sales or is the exemption only for food and beverages?
Virginia Tax Bulletin (VTB) 16-3 (5/2/16) addresses the Department's change in policy regarding the application of the retail sales and use tax to catering and other services related to purchases of food and meals by nonprofit organizations, nonprofit churches, and state and local governmental entities. Effective for purchases on and after April 22, 2016, state and local governmental entities, nonprofit organizations, and nonprofit churches may use their retail sales and use tax exemption certificates issued pursuant to Va. Code § 58.1-609.1 (4), § 58.1-609.11, and § 58.1-609.10 (16) to make exempt purchases of food and meals, as well as certain taxable services provided in connection with the provision of meals. The bulletin also addresses the Department's bright-line test to determine whether a state and local governmental entity or nonprofit organization's purchase of food or other tangible personal property, prepared meals, catering or related services satisfies the statutory “use or consumption” requirement when purchased for consumption by individuals.
Are federal agencies, state agencies, local governments, public schools, credit unions and state universities tax exempt?
Sales to the United States, or to the Commonwealth of Virginia or its political subdivisions, are exempt from the tax if the purchases are pursuant to required official purchase orders to be paid out of public funds pursuant to Title 23 VAC 10-210-690 A. Sales made without the required purchase orders and not paid for out of public funds are taxable. Sales to governmental employees for their own consumption or use in carrying out official government business are taxable.
Sales to federally chartered credit unions are exempt from the tax under (12 USC 1768). See Title 23 VAC 10-210-690 C.
Sales of tangible personal property to nonprofit schools, colleges and other institutions of learning for their use or consumption and paid for out of their funds is exempt of the tax pursuant to Title 23 VAC10-210-4020. An “other institution of learning” must be similar to a college, that is, it must (a) employ a professionally-trained faculty; (b) enroll and graduate students on the basis of academic achievement; (c) prescribe courses of study; and (d) provide instruction at regular intervals over a reasonable period of time. The tax does apply to purchases by day care centers and other pre-grade school establishments other than kindergartens.” However, “the tax applies to sales of tangible personal property to schools, colleges and other institutions of learning when they are conducted for profit.”
State and local governmental entities, nonprofit organizations, and churches using the limited, self-issued exemption will continue to be liable for the retail sales and use tax on purchases of taxable accommodations furnished for fewer than 90 continuous days and other taxable services that are not furnished in connection with the provision of meals.
The Department does not have a list of nonprofit organizations. Dealers must obtain a properly executed certificate of exemption from the nonprofit organization to relieve the dealer from the collection of tax. This requirement is explained in greater detail in Title 23 VAC 10-210-280, which provides that a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable. Reasonable care and judgment must be exercised by all concerned to prevent the giving and receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax-free purchase of any item of tangible personal property not covered by the exact wording of the certificate.
If a company or nonprofit organization is managed by a local government, is the entity still exempt from the collection of sales tax?
Title 23 VAC 10-210-690 A clarifies that the exemption is applicable only if the “purchases are pursuant to required official purchase orders to be paid for out of public funds.” Thus, only purchases of tangible personal property by the government agency itself using public funds and pursuant to official government purchase orders are exempt from the tax. However, purchases made on behalf of a government agency are exempt from the tax if the purchaser is actually the agent for the government agency and the purchase is made with public funds. See P.D. 93-21 (2/5/93); see also P.D. 9320 (2/5/93).
In addition to the existence of an agency agreement, in order for the agent to be entitled to claim the benefit of the governmental exemption, purchase agreements with sellers must bind the credit of the government. U.S. v. Forst 442 F. Supp. 920 (W.D. Va., 1977), aff’d, 569 F.2d 811 (4th Cir., 1978). This requires an investigation beyond the language of the agency agreement to determine whether the course of business has been in accordance with the expressed terms of such agreement.
I trust the above will respond to your inquiries. The responses provided are based on the facts as presented in your letter. Any change in the facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulation sections, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you should have any additional questions about this ruling you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6114358951.T