Document Number
05-111
Tax Type
Retail Sales and Use Tax
Description
Tax assessed on items rented or leased, Disposable items, Catering services
Topic
Accounting Periods and Methods
Assessment
Date Issued
07-18-2005


July 18, 2005



Re: §58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer) for the period February 2001 through January 2004. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a catering business and contests the tax assessed on items rented or leased in connection with the provision of catering services. According to the Taxpayer, the rentals in question are for one time use and should be treated as disposable items and taxed only once, either upon purchase or upon resale.

DETERMINATION

Catering Policy

Title 23 of the Virginia Administrative Code 10-210-930 addresses the application of the tax to purchases by restaurants in connection with the provision of meals and provides in section F that, "[p]aper dollies, paper placemats, plastic silverware, bags and similar items furnished with meals and which are disposed of after use by only one customer are also considered a part of a meal and can be purchased exempt under a Resale Certificate of Exemption." In addition, the regulation provides that, "[o]ther 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."

In applying the above regulation to caterers, the Department's established policy is that a caterer is the taxable consumer of all items and supplies used in connection with providing a meal, except that the food itself and related disposable items may be purchased under the resale exemption. Therefore, the Taxpayer may purchase for resale the food and disposable items that transfer to the customer and are not reusable. The tax must be paid on all other purchases made in connection with the provision of catered food.

Equipment Rental

The Department's policy with respect to equipment rentals is addressed in Virginia Tax Bulletin 92-10 (11/4/92). The Tax Bulletin states:
    • Purchases or rentals of tablecloths, tables, etc. [are] comparable to the purchase of preparation and serving items . . . and therefore cannot be purchased by the business under a Resale Exemption Certificate. The tax is applicable at the time of purchase or rental and must be paid to the vendor. These costs are passed on to the customer in the price of the meal. While the charge for the purchase or rental of such items may be separately stated on the bill the tax must be computed on the total amount charged to the customer.

Additionally, in Public Document (P.D.) 93-16 (1/29/93), the Tax Commissioner addressed a caterer's rentals of tents and upheld the tax consistent with the policy set out in the Tax Bulletin.

Based on the Department's established policy in effect during the period covered by the audit, the equipment rentals are taxable.

Policy Change Effective January 1, 2005

Effective January 1, 2005, the Department changed its policy regarding the application of the sales and use tax to certain purchases by caterers. See P.D. 04-223 (12/30/04). Effective for purchases made on and after January 1, 2005, items intended to be transferred to the customer are no longer taxable to the caterer, i.e., the caterer will not be required to pay tax at the time of purchase. Instead, items intended to be transferred to the customer may be purchased for resale by presenting a valid and complete resale certificate of exemption (Form ST-10). Items eligible to be purchased for resale include: party accessories, including invitations, favors and decorations, flowers and flower arrangements, ice sculptures and similar items. In addition, a caterer may rent for resale tables, chairs, tents, gazebos, arches, and similar equipment when such items are obtained on behalf of the customer and the charge for such rented items is passed on to the customer.

It is important to note that the caterer must document all purchases and rentals of the aforementioned items for resale purposes. The charges to the customer for such items must be separately stated on the invoice to the customer. It must be evident that the charges being incurred by the caterer for the customer are the same charges that are being passed on to the customer and on which tax is collected from the customer.

The caterer will continue to pay the tax on purchases of tangible personal property for its use in the preparation and serving of food. In addition, the caterer must pay the tax on purchases of reusable items.

CONCLUSION

Based on the policy in effect during the audit period, the assessment at issue is correct and remains due and payable. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within thirty days from the date of this letter.

The regulation, public documents, and Tax Bulletin cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner



AR/52639.i


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46