Tax Type
Retail Sales and Use Tax
Description
Tax on management fees in connection with the operation of cafeterias
Topic
Assessment
Exemptions
Date Issued
10-04-2005
October 4, 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 ***** (collectively referred to herein as the "Taxpayer") by the Department for the period October 2000 through September 2003. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a telephone salesroom in Virginia. Its facility includes two employee cafeterias. The Department conducted an audit of the Taxpayer, resulting in the assessment of tax on various items. At issue in this appeal is the assessment of tax on management fees charged by ***** (the "Provider") in connection with the operation of the cafeterias.
Under the terms of its contract with the Taxpayer, the Provider is required to operate and manage manual food service for two employee cafeterias on a management fee basis. The management fee for providing this service is the cost of business plus four percent of net manual sales or $10,000 per year, whichever is greater. Net manual sales are defined in the contract as, "all sales made by [the Provider] on the Premises, reduced by applicable sales taxes."
The Taxpayer is responsible for furnishing the Provider an adequate space and all necessary utilities and facilities. In addition, the Taxpayer is responsible for providing
The Taxpayer is responsible for furnishing the Provider an adequate space and all necessary utilities and facilities. In addition, the Taxpayer is responsible for providing all food equipment necessary for efficient services. The Taxpayer is responsible for cleaning all dining room, cart and stand areas.
The Taxpayer and the Provider mutually determine the products to be sold and the price of the products sold. All products purchased and sold by the Provider remain the property of the Provider, with title vested in the Provider until sold.
The Taxpayer contends that the agreement is solely for the management of the cafeterias and not for the sale of tangible personal property. Therefore, the Taxpayer contends the management fees are exempt from retail sales and use tax.
DETERMINATION
Virginia Code § 58.1-609.5 1 provides an exemption from the sales and use tax for, "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made . . . ."
A review of the agreements between the Taxpayer and the Provider reveals that the Provider is required to operate and manage a food service for the Taxpayer. The menu selection and the prices at which items will be sold are subject to approval by the Taxpayer; however, the Provider bears the risk of profit and loss in the operation. The Provider collects all sales tax on sales of food to the Taxpayer's employees, visitors and other customers, and remits the tax to the Department. Based on the provisions of the contract, there is no transfer of food to the Taxpayer for a consideration. In fact, the Provider holds title to all food procured for subsequent sale to the ultimate consumer (the Taxpayer's employees, visitors, and other customers).
Based on the foregoing, it is my determination that the agreements between the Taxpayer and the Provider are for the professional services of the Provider to operate the Taxpayer's food service facilities. In consideration thereof, the Taxpayer pays a management fee. As such, the management fee represents an exempt charge in connection with the provision of a service, as set out in Va. Code § 58.1-609.5 1.
Based on this determination, the management fees will be removed from the audit and the assessment will be recomputed. A revised bill will be sent to the Taxpayer. No additional interest will accrue provided the outstanding balance of the revised bill is paid within 30 days from the date of the bill. The Taxpayer should remit its payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia section cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's website, 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
-
- Kenneth W. Thorson
-
-
-
-
-
-
AR/52367.i
Rulings of the Tax Commissioner