Tax Type
Retail Sales and Use Tax
Description
Taxability of Free or Discounted Meals Provided to Employees
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
08-02-2001
August 2, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period August 1996 through October 1998. I apologize for the delay in our response.
FACTS
The Taxpayer operates restaurants within the Commonwealth. The department's audit disclosed that the Taxpayer deducted as exempt sales the retail value of meals provided free of charge to managers, executives and employees. Tax was assessed on the value of the meals and the value of meals sold to employees by the Taxpayer at a 50% discount.
The Taxpayer seeks an adjustment of the department's audit, contending that the retail values of the meals provided to managers, executives and employees are not taxable as they are furnished to such employees without charge and in accordance with Code of Virginia
§ 58.1-609.3(7) and Title 23 of the Virginia Administrative Code (VAC) 10-210-930(C). The Taxpayer also contends that the meal charges to employees are properly subjected to the tax on the discounted price of the meals and should not be included in the department's audit.
DETERMINATION
Generally
Code of Virginia § 58.1-609.3(7) provides an exemption from the sales tax for "Meals furnished by restaurants or food service operators to employees as a part of wages." Title 23 VAC 10-210-930 interprets this Code section and provides that an employer who sells meals to employees must add the tax to the charges and remit the tax based on gross sales. Meals and drinks that are furnished to employees without charge are not subject to the tax, provided that such costs are a part of an employee's wages.
Meals Furnished to Employees
Comments by the department's auditor indicate that no evidence was presented to reflect that any of the meals provided to employees were a part of employees' wages. Based on the requirement presented in the statute, I find that the auditor was correct in including such charges in the audit computations.
In light of the foregoing, however, if the Taxpayer can provide documentation to show that such meals are a part of employees' wages, I will have an auditor review that information for possible adjustments to the audit. I will allow an additional 30 days from the date of this letter for the Taxpayer to secure such information. Once available, the Taxpayer should contact of the department's Office of Tax Policy. Please note, however, that if such documentation is not made available within the time allowed, the assessment will be considered correct as assessed, and no adjustments will be made. A form of documentation that may be acceptable is payroll records that show meal allowances as other earnings in the payroll account.
Discounted Meals
The Taxpayer provides a benefit to its employees by discounting the price of employee meals by 50%. The Taxpayer states that, as with other meals reduced by discounts offered by the restaurant, the employee meals are first reduced by 50% and tax is charged on the remaining balance (the amount actually paid by the employee). Based on the audit information before me, I find that the Taxpayer has applied the tax to the discounted employee meals properly. Accordingly, I will allow for the removal of the sales measure directly related to such sales and as reflected in the auditor's sales exception listing.
If you should have any additional questions regarding this matter, please contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22737Q
Rulings of the Tax Commissioner