February 2, 2017
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which ***** (the “Taxpayer”) requests a ruling regarding the application of the Food Tax Reduction Program to the Taxpayer's business. I apologize for the delay in responding to your request.
FACTS
The Taxpayer operates a ready-to-cook meal delivery service in the state of Virginia. The Taxpayer's product consists of packaged uncooked meals for two or four persons, and includes all the raw ingredients needed to prepare a complete meal in the home. The uncooked meals are chilled below 40 degrees and delivered to the customer, who cooks and prepares.
When registering for the collection of the Virginia retail sales and use tax the Taxpayer erroneously selected the North American Industry Classification System (NAICS) code for caterers. The Taxpayer requested clarification in March 2016 as to whether it should be collecting the full retail sales tax on its sales to Virginia customers, or did its business qualify for the reduced sales tax rate under the Virginia Food Tax Reduction Program. Based on the selected NAICS code, the Department advised the Taxpayer that its sales did not qualify for the reduced sales tax rate on food for home consumption and that it should collect the full sales tax rate. The Taxpayer requests reconsideration based on the nature of its business model and the Department's established criteria for qualifying for the reduced sales tax rate on sales of food for home consumption.
RULING
Business Classification
A review of the NAICS Manual shows that the Taxpayer's operation is most similar to businesses classified under 454390, Direct Selling Establishments. This industry group comprises establishments primarily engaged in nonstore retailing. Establishments in this industry include home delivery of frozen food and freezer meal plan providers.
Based on the facts provided, the Taxpayer's product consists of raw and uncooked food items not intended for immediate consumption, packaged in closed insulated containers and delivered to customers for home consumption. I agree that the Taxpayer's sales of uncooked meals are sales of tangible personal property rather than sales of services. The Taxpayer provides some services in connection with its sales of uncooked meals. The services include preparing the uncooked dinner meal kits, packaging and delivering the uncooked meals. In accordance with Title 23 of the Virginia Administration Code (VAC) 10-210-4040 B, any services provided in connection with taxable sales of food or meals are taxable as services in connection with the sale of tangible personal property.
Food Reduction Program
The Food Tax Reduction Program set out in Va. Code § 58.1-611.1 applies a reduced sales and use tax rate to sales of food purchased for home consumption as defined under the Food Stamp Act of 1977, 7 U.S.C. § 2012. This definition includes most staple grocery food items and cold prepared foods that are packaged for home consumption. The Food Stamp definition includes eligible foods that are packaged for home consumption or packaged for consumption away from the premises where such foods are sold or packaged on a “to go” basis. As such, for purposes of applying the Food Tax Reduction Program, any qualifying food that is packaged in a closed container, bag, or other similar packaging, and is not sold for immediate consumption falls in the category of eligible food for home consumption. This applies regardless of whether the food is sold to an individual or a business.
Based on the information provided, the Taxpayer's sale of uncooked meals qualifies for the Virginia Food Tax Reduction Program and the reduced sales and use tax rate. The current Virginia sales tax rate of food for home consumption is 1.5 percent state sales tax and 1 percent local sales tax, for a combined sales tax rate of 2.5 percent. The Taxpayer should charge its customers the reduced tax rate on the total sales price of the uncooked meals. The Taxpayer should note, however, that Va. Code § 58.1-609.5 3 provides an exemption from the tax for separately stated delivery or transportation charges. Because the Taxpayer's purchases of raw and uncooked food in connection with the uncooked meal kits sold to customers are exempt purchases for resale, the Taxpayer should issue its vendors properly executed resale exemption certificates (Form ST-10) when it purchases such food for resale in accordance with Title 23 VAC 10-210-280.
I hope the above responds to your inquiry and I apologize for any misinformation you may have previously received.
The Code of Virginia section and regulations cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. 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