January 21, 2020
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 Virginia retail sales and use tax jeopardy assessment issued for the period June 2014 through December 2014 and the retail sales and use tax audit assessments issued for the period January 2015 through April 2017. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates family dining and entertainment centers (the “Centers”). At issue in the Taxpayer’s appeal are the jeopardy assessment and the sales and use tax audit assessments issued to the Taxpayer. In regard to the jeopardy assessment, the auditor issued this assessment to the Taxpayer to preserve the periods June 2014 through December 2014 because the Taxpayer would not sign a waiver of the statute of limitations to cover such periods. In regard to the sales and use tax assessments, the auditor found that the Taxpayer did not charge sales tax on the sale of tokens, coupons and Play Points (“the Points”) when sold as part of the Taxpayer’s Value Deals and Birthday Party packages (“the Packages”). The auditor likens the Points to sales of admissions. Citing the Virginia Code § 58.1-602 definition of sales price, Title 23 of the Virginia Administrative Code (VAC) 10-210-930, Title 23 VAC 10-210-30, and Public Documents (P.D.) 14-1 (1/3/14), 14-41 (3/20/14) and 17-12 (3/3/17), the auditor assessed sales tax on sales of the Points sold as part of the Packages.
The Taxpayer disagrees with the assessments and requests the jeopardy assessment be abated in full, and the assessments related to the sale of the Points be abated as well. The Taxpayer provides that the Points are sold to the customer on a Play Pass card (“the Card”), and the Card is a stored value card. However, the Card does not store a dollar value like a gift card or pre-paid credit card. The Taxpayer states that the Points can only be used to activate the games and rides located in the Taxpayer’s centers and cannot be used to purchase food or beverages. As the games and rides are activated by the customers, Points are deducted from the total amount on the Card. The Taxpayer states that its customers receive a discount on the price paid when purchasing food, beverages and Points as part of the Packages, as opposed to purchasing these items a la carte. The Taxpayer states that it does not charge a fee to its customers to enter its Centers.
DETERMINATION
Audit Assessments
Admissions
Title 23 VAC 10-210-30 explains the Department’s policy on the application of the sales tax to admissions and states the following:
The tax does not apply to sales of tickets, fees, charges, or voluntary contributions for admissions to places of amusement, entertainment, exhibition, display, or athletic contests, nor to charges made for participation in games or amusement activities. However "cover charges" or "minimum charges" which include the provision of or the entitlement to food, drinks, or other tangible property constitute a sale of property and are subject to the tax. Admission fees or "door charges" which entail no right to receipt of or credit toward the purchase of food or other tangible personal property are not subject to the tax.
The Taxpayer does not charge its customers a fee for admission to its Centers. The Points are not charges for admission as considered in Title 23 VAC 10-210-30. As previously stated, the Points are only used to activate the games and rides at the Taxpayer’s Centers. Accordingly, the Points are not subject to the sales tax as an admissions fee when sold as part of the Packages offered by the Taxpayer.
Public Documents 14-1, 14-41 and 17-12, address the sale of party packages that include admission to amusement facilities and the provision of food and beverages. In these instances, the total charge for the party packages were determined to be subject to the retail sales tax. The Tax Commissioner ruled that when provided in conjunction with food and beverages, admission charges were properly included in the taxable sales price of the party package sales transactions. These public documents are not applicable in this instance because the charges for Points as part of the Packages are not charges for admissions.
Meals
In accordance with Title 23 VAC 10-210-930, the auditor found that the sale of the Points included with the Packages should be taxed. The basis for this finding is that the Points are sold as part of the Packages along with food.
Title 23 VAC 10-210-930 A provides that “Retail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable.”
The Points are not subject to the sales tax when sold independently of a Package. The fact that the Points are sold as part of the Packages with food does not make the Points subject to the sales tax. The Points are not connected with the sale of or the provision of food. Further, the Points sold as part of the Packages are not considered cover, minimum and room service charges in connection with the provision of meals as considered in Title 23 VAC 10-210-930. Accordingly, the Points are not subject to the retail sales tax when sold as part of the Packages.
Sales Price
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 this Commonwealth, or who rents or furnishes any of the things or services taxable under this chapter….” A “retail sale” is defined in Virginia Code § 58.1-602, in part, as “a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter ...” The retail sales tax is computed on the “sales price” of the property or services sold.
Virginia Code § 58.1-602 defines sales price, in pertinent part, as:
The total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.”
In this instance, the Points sold as part of the Packages are used by the Taxpayer’s customers to activate the games and rides located in the Taxpayer’s Centers. The Points cannot be used to purchase food and beverages. While sold as part of the Packages with the food and beverages, the Points provide no entitlement to the food and beverages sold by the Taxpayer, nor are they connected to the provision of such food. Further, the Points are not a service that is subject to the sales tax. The purchase price of the Points should not be included in the sales price of the Packages sold to the Taxpayer for the purpose of the retail sales and use tax. Accordingly, the assessment related to the sale of Points as part of the Packages is not correct in this instance.
Jeopardy Assessment
Virginia Code § 58.1-631 provides, in pertinent part, that:
If the Tax Commissioner is of the opinion that the collection of any tax or any amount of tax required to be collected and paid under this chapter will be jeopardized by delay, he shall make an assessment of the tax or amount of tax required to be collected and shall mail or issue a notice of such assessment to the taxpayer together with a demand for immediate payment of the tax or of the deficiency in tax declared to be in jeopardy including penalties.
The jeopardy assessment was based upon the auditor’s conclusion that the Taxpayer failed to charge the sales tax on the Points sold as part of the Packages and was issued because the Taxpayer would not sign a waiver of statute of limitations for the audit period at issue. As provided above, I have determined that the Points are not subject to the sales tax when sold as part of the Packages. Further, the jeopardy assessment was erroneously assessed because the collection of the tax related to the periods at issue was not jeopardized by delay as considered in the statute. Accordingly, there is no basis to uphold the issuance jeopardy assessment.
CONCLUSION
Based upon this determination, the assessments related to the Points sold as part of the Packages will be removed from the audit. Additionally, the jeopardy assessment will be abated in full. The audit will be returned to the appropriate field audit staff to make the revisions as stated herein. Revised bills, with interest accrued to date, will be mailed to the Taxpayer once the revisions to the audit have been completed. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections, regulations and public documents cited 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 about this determination, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1482P