Tax Type
Retail Sales and Use Tax
Description
Tax on meals provided free of charge to employees
Topic
Accounting Periods and Methods
Exemptions
Taxable Transactions
Date Issued
04-10-2008
April 10, 2008
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period August 2003 through July 2006. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates multiple convenience store facilities. Within some of the stores, the Taxpayer operates various fast food service restaurants. The Taxpayer established a meal program that allows its employees to obtain meals free of charge. In the audit, the Taxpayer was held taxable on 35% of the gross sales price with regard to the meals provided to its employees free of charge. The Taxpayer contends that based on its volume of sales, it should be classified as a food service operator and that it properly applied the exemption to the meals at issue. The Taxpayer also contends that it relied upon guidance provided in a prior audit.
DETERMINATION
Virginia Code § 58.1-609.3 7 provides that the retail sales and use tax does not apply to "[m]eals furnished by restaurants or food service operators to employees as a part of wages."
In Public Document (P.D.) 94-60 (3/15/94), the taxpayer was a full service hotel and restaurant. The taxpayer was assessed tax on meals furnished to non-restaurant employees. The Tax Commissioner determined that the exemption provided in Va. Code § 58.1-609.3 7 pertains specifically to meals furnished to restaurant employees as part of wages. Meals provided by employers to other than restaurant or food service operation employees are subject to the tax.
The Taxpayer asserts that during an audit for the period July 1991 through June 1994, it was advised by the auditor that meals provided to employees without charge were exempt from the tax. The Taxpayer asserts that as a result of this finding, it was given a credit for tax it had remitted on meals provided free of charge to its employees. The Taxpayer further asserts that in a subsequent audit for the period January 1997 through August 1999, the auditor did not determine that the Taxpayer's procedure of not remitting tax for meals provided free of charge to its employees was inconsistent with the tax law. A review of the audits confirms the Taxpayer's assertions. The audit for the period July 1991 through June 1994 provides no indication that the Taxpayer owned any fast food restaurants during this period. However, in the audit for the period January 1997 through August 1999, several of the Taxpayer's convenience stores also contained fast food restaurants.
Because the Taxpayer relied on guidance given in a prior audit with regard to the application of tax on meals provided free of charge to its employees, the Taxpayer will not be held liable for the tax assessed on these meals in the current audit. The audit will be returned to the audit staff, and the tax assessed on these meals will be removed from the audit.
Notwithstanding the above, based on the information provided in the appeal and to the audit staff, it appears that the Taxpayer's employees work where needed within the Taxpayer's establishment. None of the employees are assigned to work only in the Taxpayer's fast food restaurants. Accordingly, pursuant to Va. Code § 58.1-609.3 7 and P.D. 94-60, effective the date of this letter, the Taxpayer must remit tax on all meals provided to its employees free of charge.
The Code of Virginia section and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
-
-
-
-
-
-
AR/1-1279297916P
Rulings of the Tax Commissioner