Tax Type
Retail Sales and Use Tax
Description
Reduced Food Tax Rate; Doubtful Collectibility
Topic
Rate of Tax
Statute of Limitations
Date Issued
02-27-2012
February 27, 2012
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 July 2008 through January 2011. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates as an ice cream shop. The Taxpayer was assessed tax on food products sold in its shop in instances where the reduced food tax rate had been incorrectly charged. Relying on Virginia Tax Bulletin (VTB) 05-7 (5/31/05), the Taxpayer maintains that it is eligible to charge the reduced food tax rate on sales made at its ice cream shop. The Taxpayer disagrees with the determination that it erred in charging the reduced food tax rate and contests the assessment as issued. The Taxpayer further states that having to pay the assessment would be a hardship and a financial burden on its business. Finally, the Taxpayer objects to a lien being placed on its account before the 90-day statute of limitations to appeal expired.
Reduced Food Tax Rate
Virginia Code § 58.1-611.1 imposes a reduced sales tax on food purchased for human consumption. Pursuant to VTB 05-7, "[t]he reduced 2½ % rate applies to all food for home consumption. Food purchased for home consumption includes most staple grocery food items and cold prepared foods packaged for home consumption."
The Tax Bulletin further provides that the reduced sales tax rate applies to foods that are deemed eligible under the federal food stamp definition without regard to the nature of the retailer making the sale of the food or whether the retailer participates in the federal food stamp program administered by the USDA. [Emphasis added.]
Pursuant to VTB 05-7, ice cream shops should charge the reduced sales tax rate on sales of eligible food and beverages. Food that is not considered "eligible food" under the federal food stamp program continues to be fully taxable at the 5.0% rate. In all cases, the defining condition is that the item must be food for home consumption. [Emphasis added.]
In accordance with the aforementioned authorities, ice cream shops are required to charge the reduced sales tax rate on the sale of eligible food and beverages. The ice cream shops are required by those same authorities to charge the full sales tax rate on sales of food that are not eligible for the reduced rate. Therefore, the Taxpayer was required to charge the full sales tax rate on food and beverages sold for immediate consumption. Accordingly, the tax assessed in the audit on food sold for immediate consumption is correct as issued.
Doubtful Collectibility
In this instance, the Taxpayer asserts that having to pay the assessment would be a hardship and financial burden on its business.
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 OIC-BUS, 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 OIC-BUS 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 OIC-BUS within 45 days from the date of this letter, it will be presumed that no additional information will be submitted, and the outstanding liability will become immediately due and payable.
Lien
The Taxpayer objects to a lien being placed on its account prior to the 90-day statute of limitations to appeal expiring.
On April 5, 2011, the Department issued the original Notice of Assessment to the Taxpayer for the outstanding liabilities as determined in the audit for the period at issue. On June 11, 2011, the Department applied a third party lien to the Taxpayer's bank account for nonpayment of the assessment, in accordance with Va. Code § 58.1-1804. The statute does not require prior notice be given to a taxpayer before applying the third party lien. The statute also authorizes the Department to begin collection actions if the outstanding liability is not paid within 30 days after the assessment was issued. The third party lien was removed from the Taxpayer's account on June 24, 2011, and as of the date of this letter there are no third party liens on the Taxpayer's account.
The Code of Virginia sections and tax bulletin 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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Craig M. Burns
Tax Commissioner
AR/1-4814030777.P
Rulings of the Tax Commissioner