October 4, 2017
Re: Request for Ruling: Retail Sales and Use Tax
This will reply to your request for a ruling made on behalf of an anonymous client (the “Company”) regarding the application of the retail sales and use tax to the provision of online restaurant order placement services. I apologize for the delay in responding to your letter.
The Company operates an online marketplace that enables customers to purchase meals and food (collectively, “food”) from restaurants. The restaurants are independent businesses and are not related to the Company. The Company has no physical locations in Virginia. Customers use the Company's website to search for and browse food menus from local restaurants in a particular geographic area. The customers place online orders to purchase food from the restaurants and pay for the cost of the food, sales and local meals taxes and any applicable delivery charges or tips. Customers can also choose to pay the restaurants directly for their purchases. The customers typically pick up the food from the restaurants. In some cases, restaurants that offer delivery services will deliver the food to customers.
The terms and conditions of the agreement between the Company and the restaurants establish that the restaurants are the sellers of the food and are responsible for the preparation and quality of the food. The Company does not control the manner in which the restaurants prepare the food, set their prices, select the menu items to sell or establish when the food is ready for pickup or delivery. The restaurants are solely responsible for addressing and remedying customer issues or problems with the food that is sold through the Company's website. However, the Company may help facilitate the resolution of any customer issues or problems.
The Company issues the customer an invoice that lists the name of the restaurant, the prices of the items purchased, the sales tax and local meals tax on the total food amount, a delivery charge and a tip, if applicable. There is no markup by the Company of the food prices charged by the restaurants. The Company processes customer payments and remits the proceeds, less certain deductions, to the restaurants. The Company withholds from the customer payment receipts a commission equal to a fixed percentage of the charge for the food portion of the sales transactions. The Company also withholds the fees related to the credit and debit card transactions that it processes. If the customer pays the restaurant directly, the Company bills the restaurant for the commission on the food sale. In limited cases, the Company subcontracts with delivery services to deliver food. In such cases, the customer is billed a separate delivery charge for the delivery of the food.
The Company requests the Department to rule whether it is a Virginia dealer that is required to collect the retail sales tax on sales of food via its online web platform. The Company maintains that the restaurants are the true dealers and that it is a technology business and intermediary that merely facilitates sales of food between the restaurants and their customers. The Company states that double taxation could result if the Department concludes that both the Company and the restaurants are dealers that are required to collect the sales tax on the same sales of food.
Virginia Code § 58.1-603 imposes the retail sales and use tax on every person “who engages in the business of selling at retail or distributing tangible personal property” in Virginia. The tax is to be collected by all persons who are “dealers” as defined in Va. Code § 58.1-612. A review of the dealer criteria in Va. Code § 58.1-612 indicates that the Company's activities most closely resemble the provisions of Subsection B 3, which states that a dealer includes any person who:
Sells at retail, or who offers for sale at retail, or who has in his possession for sale at retail, or for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property.
A “sale at retail” is defined in Va. Code § 58.1-602 as “a sale to any person for any purpose other than for resale in the form of tangible personal property or services.” A sale is defined in Va. Code § 58.1-602 as “any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration.”
For a transaction to constitute a “sale,” there must be a transfer of title to or possession of tangible personal property for a consideration. In this case, the Company never takes possession of the food from the restaurants. Thus, it cannot transfer possession of the food to the customers. The transfer of possession occurs between the restaurants and the customers. The Company does not hold title to or have an ownership interest in the restaurants' food products. The restaurants maintain title to and possession of the food until it is transferred to the customers. From the time a customer orders food using the Company's online service until the customer picks up the food or takes delivery of the food, the Company never has title to or possession of the restaurants' food products.
Based on the definition of sale in Va. Code § 58.1-602, the Company does not meet the dealer criteria in Va. Code § 58.1-612 B 3. While the Company processes payments received from the customers that purchase food from the restaurants, only commissions and credit card fees are retained by the Company. The balance of the payment proceeds is transferred to the restaurants. In the instant case, the Company is providing payment processing services to the restaurants, in addition to online ordering services. However, the Company is not engaged in making retail sales of food and is not a dealer for Virginia retail sales and use tax purposes.
Because the Company does collect the retail sales tax on behalf of the restaurants, adequate records and documentation must be maintained to demonstrate that the sales taxes are properly calculated and the sales tax amounts collected are transferred in full to the restaurants. In the event individual restaurants are audited by the Department, the restaurants may be required to produce documentation that allows the Department's auditors to verify that the proper amounts of sales tax from sales generated through the Company's ordering service have been reported and remitted to the Department.
This response is based on the facts presented as summarized above. These facts are based solely on the representations made in the Company's ruling request and on the information provided to a member of my staff in emails and in telephone conversations. As such, any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections cited, along with other reference documents, are available on line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions regarding this ruling, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Craig M. Burns