Tax Type
Retail Sales and Use Tax
Description
Tax on room rental charges, equipment rentals and service charges to nonprofits
Topic
Nonprofits
Tangible Personal Property
Taxable Transactions
Date Issued
08-31-2010
August 31, 2010
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 September 2006 through August 2009. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates as a catering business. The Taxpayer provides a wide variety of banquet and catering services. All events are held at a venue owned by the Taxpayer. The Taxpayer contests the assessment of tax on room rental charges, equipment charges on rentals to nonprofit entities and service charges to nonprofit entities. The Taxpayer is not contesting the portion of the assessment that relates to its sale of food to nonprofit entities.
DETERMINATION
Room Rental Charges
The Taxpayer contests the assessment of tax relating to room rental charges. The Taxpayer contends that in a prior audit these charges were discussed with the auditor. The Taxpayer further contends that the auditor concluded that the Taxpayer was correctly applying the retail sales and use tax to charges for room rentals, and that the audit did not include any tax or comments relating to these types of charges. The Taxpayer maintains that the room rental charges at issue in the current audit are of the same type that occurred during the previous audit period. The Taxpayer requests that the tax liability assessed with respect to the room rental charges be removed from the audit.
Pursuant to Public Document (P.D.) 88-40, there is no general exemption for nonprofit entities. Additionally, P.D. 89-201 (7/28/89) further provides that charges for accommodations are generally taxable. Accordingly, the sale of room accommodations to nonprofit entities is subject to the retail sales and use tax.
Virginia Code § 58.1-1835 states, "The Tax Commissioner shall abate any portion of any tax, interest, and penalty attributable to erroneous advice furnished to the taxpayer in writing by an employee of the Department acting in his official capacity if:
1. The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;
2. The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and
3. The facts of the case described in the written advice and the request therefor are the same, and the taxpayer's business or personal operations have not changed since the advice was rendered."
Pursuant to Va. Code § 58.1-1835, the Tax Commissioner is authorized to abate any tax, penalty and interest attributable to erroneous written advice. In this instance, the Taxpayer has not provided sufficient evidence to support its reliance on erroneous written advice. Accordingly, the tax was properly assessed in the audit.
Equipment Charges
The Taxpayer contests the assessment of tax on charges related to the rental of equipment to nonprofit entities. The Taxpayer states the type of equipment at issue includes audio/visual equipment, whiteboards, and other such equipment. The equipment is provided for the Taxpayer's customers who also purchase catering services from the Taxpayer.
Pursuant to Va. Code § 58.1-603, the retail sales and use tax is imposed upon the rental of tangible personal property. Virginia Code § 58.1-623 A provides, "All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter."
Virginia Code § 58.1-609.11 authorizes nonprofit entities to make purchases of tangible personal property exempt of the Virginia retail sales and use tax in accordance with the nonprofit exemption letter issued by the Department.
In this instance, the equipment at issue is not related to the actual food catering services provided by the Taxpayer to its customers. As such, the application of tax on the rental of the equipment is based on the fact that the Taxpayer is renting tangible personal property to its customers. The Taxpayer should charge and collect the retail sales and use tax to its customers when such property is rented to the customers. However, pursuant to Va. Code §§ 58.1-623 and 58.1-609.11, such sales can be made exempt of the tax, provided the Taxpayer receives from its customer a valid exemption certificate. The Taxpayer would need to receive a nonprofit exemption letter issued by the Department in order to make exempt sales or rentals to its customers that are nonprofit entities.
Accordingly, for the reasons stated above, the assessment with respect to the transactions at issue in the audit is correct, unless the Taxpayer can prove that it properly made exempt sales to its nonprofit customers. The Taxpayer is given 30 days from the date of this letter to provide to the audit staff the nonprofit exemption letters associated with these transactions. The audit staff will contact the Taxpayer to schedule a time for the Taxpayer to provide the aforementioned documentation. The audit will be revised as warranted, based upon a review of the documentation provided.
Service Charges
The Taxpayer contests the assessment of tax on service charges made in connection with catered services provided to nonprofit entities. The Taxpayer was assessed tax in the audit on these service charges pursuant to the Va. Code § 58.1-602 definition of sales price (subsection v). This subsection provides that sales price shall not include "that portion of the amount paid by the purchaser as a mandatory gratuity or service charge added by a restaurant to the price of a meal, but only to the extent that such mandatory gratuity or service charge does not exceed 20% of the price of the meal." In accordance with the statute, these charges were considered to be "a mandatory gratuity or service charge added by a restaurant to the price of a meal" in the audit. The Taxpayer states these charges are for set up and include charges for set up services and charges for tables, chairs, linens, plates, silverware and chinaware. The Taxpayer states the charges are mandatory, but do not exceed 20 percent of the price of the meal. The Taxpayer requests that these charges be removed from the audit, and requests clear guidance on this issue for future sales.
It has been established that the provision of catered food is considered the sale of a taxable service. See, P.D. 00-139 (2/20/98). Pursuant to Va. Code § 58.1-602, "sales price means the total amount for which tangible personal property or services are sold ...." Based upon the facts provided, the set up, tables, chairs, linens, plates, silverware and chinaware are provided in connection with the sale of taxable catering services from the Taxpayer to its customer. The charges are not a gratuity as considered in subsection v of the Va. Code § 58.1-602 definition of sales price. Rather, the charges for set up, tables, chairs, linens, plates, silverware and chinaware are subject to the tax as part of the total charge for the catering services. Accordingly, the audit assessment related to these charges is correct.
Offer in Compromise/Financial Hardship
The Taxpayer states that its continued existence is largely dependent upon the outcome of this appeal. The Taxpayer maintains that if required to pay the entire assessment, or even a portion of the contested portion of the assessment, it may be forced to close. Accordingly, the Taxpayer offers to remit the tax on the portion of the assessment not being contested, ***** paid over a 12-month period, as settlement of the outstanding liability.
Virginia Code § 58.1-105 authorizes the Tax Commissioner to compromise and settle doubtful or disputed claims for taxes or tax liability of doubtful collectibility. In order for an offer based on doubtful collectibility to be considered by the Tax Commissioner, evidence of doubtful collectibility must be presented to support your claim. If you wish to pursue an offer based on doubtful collectibility, please complete and return the enclosed Form CS-21, Collection Information Statement for Businesses. This form will allow the Department to review and analyze the Taxpayer's financial situation. Upon completion of the Department's review, a response will be issued based on the information presented. Please return the completed Form CS-21 to the Department's Collections Section, Offer in Compromise Team, Post Office Box 1880, Richmond, Virginia 23218-1880. You may also contact a member of this team at (804) 367-8045. If the Department does not receive the Taxpayer's completed Form CS-21 within 45 days from the date of this letter, it will be presumed that no additional information will be submitted.
CONCLUSION
Based on this determination, the assessment is correct as issued. However, the Taxpayer will be given the opportunity to provide documentation related to the sales of the audio/visual equipment to its nonprofit customers. Revisions will be made to the audit, if warranted, based on a review of the documentation by the audit staff. If revision to the assessment is warranted, the revised amount will be considered in evaluating any offer in compromise submitted by the Taxpayer.
The Code of Virginia sections and public documents cited 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 Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Linda D. Foster
Deputy Tax Commissioner
- Linda D. Foster
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AR/1-4097107528.P
Rulings of the Tax Commissioner