Tax Type
Retail Sales and Use Tax
Description
Coffee service providers are subject to tax on coffee brewing equipment
Topic
Property Subject to Tax
Date Issued
03-08-2006
March 8, 2006
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter of February 28, 2006, in which you request a ruling on the application of the reduced food tax rate to sales of products by ***** (the "Taxpayer").
FACTS
The Taxpayer provides a coffee service to retail and end-user business customers. At issue is the coffee service provided to end-user customers. The Taxpayer offers to its customers coffee brewing equipment and coffee supplies at the customer's office site. The supplies include coffee, sugar and creamer. The Taxpayer provides the coffee brewing equipment under a loaned equipment agreement for a set charge. The coffee supplies are sold separately from the agreement.
The Taxpayer sends a representative to its customer's site every two weeks. The representative services the coffee brewing equipment and restocks the supplies. No charge is made at this time for servicing the equipment. An invoice is generated, however, that itemizes the supplies being restocked. The Taxpayer applies the sales tax to the itemized charges for the supplies.
The Taxpayer requested this ruling as a result of inquiries made to the Department regarding the application of the reduced sales tax rate to the food products sold by the Taxpayer. The Taxpayer seeks to clarify whether its sales of coffee, sugar and creamer qualify for the reduced sales tax rate.
RULING
The Food Tax Reduction Program set out in Virginia 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 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 food (except hot 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 this analysis, the coffee, sugar and creamer products sold by the Taxpayer qualify for the reduced rate of 2½%.
The Taxpayer also provides coffee brewing equipment. Although the Taxpayer does not raise the question of the tax application to this activity, I want to bring the Taxpayer's attention to a number of prior rulings that address this equipment. The Tax Commissioner has consistently held that coffee service providers are subject to the tax on the purchase of coffee brewing equipment that is loaned to its customers. See Public Documents 92-146 (8/19/92), 93-84 (3/26/93) and 02-123 (9/27/02).
I trust this responds to your inquiry and clarifies the application of the Food Tax Reduction Program to the food products sold by your company. If you have additional questions, you may contact ***** in the Appeals and Rulings unit of the Office of Policy and Administration at *****.
The Food Tax Reduction Program is explained in Virginia Tax Bulletins 99-11 (10/1/99) and 05-7 (5/31/05). The bulletins and the public documents cited, and other reference documents, are available in the Tax Policy section of the Department's website at www.tax.virginia.gov.
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- Sincerely,
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- Kenneth W. Thorson
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- Tax Commissioner
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- Kenneth W. Thorson
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AR/1-557322216J
Rulings of the Tax Commissioner