Rulings of the Tax Commissioner

April 12, 2023

Re:    Request for Ruling: Retail Sales and Use Tax

Dear *****:

This will respond to your letter submitted on behalf of ***** (the “Taxpayer”), requesting a ruling on the application of Virginia’s retail sales and use tax to a donation-based restaurant. I apologize for the delay in responding to your request.

FACTS

The Taxpayer, a nonprofit organization exempt from federal income taxation under Internal Revenue Code § 501(c)(3), plans to operate a “donate what you can” restaurant in Virginia. Meals will be offered to customers from a menu and customers are asked to either make a monetary donation or volunteer their time as payment. The Taxpayer requests a ruling on whether it is required to collect and remit sales tax on the transactions.

DETERMINATION

Virginia Code § 58.1-609.11 provides an exemption from Virginia’s retail sales and use tax on tangible personal property purchased by a nonprofit organization for its own use or consumption. In order to be eligible for the exemption, the nonprofit organization must meet certain statutory requirements, file an application, and be issued a certificate of exemption by the Department. The Taxpayer has been issued an exemption certificate under this section. However, the certificate does not exempt sales of tangible personal property made by the Taxpayer. 

Prepared food and meals are tangible personal property and are generally subject to the retail sales and use tax unless a specific exemption applies. Virginia Code § 58.1-609.10 provides that a nonprofit organization that is eligible for an exemption on its purchases and is otherwise eligible for the occasional sales exemption, “shall be exempt … on its sales of (i) food, prepared food and meals and (ii) tickets to events that include the provision of food, prepared food and meals, so long as such sales take place on fewer than 24 occasions in a calendar year.” See also Virginia Tax Bulletin 09-8, published as Public Document 09-99 (6/23/2009). Because the Taxpayer’s restaurant is not limited to occasional sales, the transactions described by the Taxpayer are subject to retail sales and use tax, unless a customer furnishes a valid certificate of exemption for a specific transaction.

In addition, the Taxpayer is a dealer within the meaning of Virginia Code § 58.1-612, meaning that it must register with the Department and must collect and remit the retail sales and use tax due on its transactions. Virginia Code § 58.1-603 imposes the sales tax on, among other transactions, “the gross sales price of each item or article of tangible personal property when sold at retail or distributed within this Commonwealth.”  Pursuant to Virginia Code § 58.1-602,

“Sales Price” means the total amount for which tangible personal property or services are sold…, 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… “Sales Price” does not include … (iv) that portion of the amount paid by the purchaser as a discretionary gratuity added to the price of a meal; or (v) that portion of the amount paid by the purchaser as a mandatory gratuity or service charge added by a restaurant to the price of a meal, but only to the extent that such mandatory gratuity or service charge does not exceed 20 percent of the price of the meal.
    
Because the Taxpayer must charge tax on the sales price of any nonexempt sales, it should have a method of accounting that separates the sales price from any donation received. Should the Taxpayer accept a donation in one lump sum amount with the sale of a meal, with no method of separating out the charge, the Taxpayer would be required to collect the tax on the entire amount.

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****, or via email at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

                    
AR/1834-C