February 15, 2022
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), requesting a ruling on the application of the retail sales and use tax to purchases made from an in-flight catering company. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer is an airline operating as a common carrier in interstate and foreign commerce. The Taxpayer has a contract with an in-flight catering company (the “Vendor”) to provide food and beverages for in-flight service. The Vendor applies sales tax on the food and beverages the Taxpayer purchases for its passengers. The Taxpayer is inquiring as to the application of tax on the food items purchased from the Vendor to be served to passengers on flights. The Taxpayer argues that its purchase of food items is exempt because of its status as a common carrier with regularly scheduled daily flights in the Commonwealth.
RULING
Virginia Code § 58.1-609.3 6 sets out the retail sales and use tax exemption afforded to airlines operating in interstate and foreign commerce, providing an exemption for the following:
Tangible personal property sold or leased to an airline operating in intrastate, interstate, or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports at least one day per week, for use or consumption by such airline directly in the rendition of its common carrier service. [Emphasis added.]
Title 23 of the Virginia Administrative Code (VAC) 10-210-100 interprets the exemption statute and provides, in part, that meals, snacks and beverages furnished by an airline to passengers or others are not used or consumed by the airline directly in the rendition of its common carrier service. Therefore, such items are subject to the tax. Additionally, Title 23 VAC 10-210-930 A states:
The tax applies to the sale of meals and other tangible personal property by railroad, Pullman car, steamship, airline, or other transportation companies while operating in Virginia. The tax applies to meals delivered to carriers in this state to be furnished without a specific charge to passengers regardless of where served.
The Department’s policy with regard to airlines operating in interstate and foreign commerce is guided by the Virginia Supreme Court’s decision in Commonwealth of Virginia v. United Airlines Inc., 219 Va. 374, 248 S.E.2d 124 (1978) (hereinafter “United Airlines”). In United Airlines, the Virginia Supreme Court ruled that food and related items served to passengers during flights were considered amenities and an operating expense that is necessary in the competitive field of air transportation, stating:
[T]he service of food is considered a commercial amenity and an operating expense which is necessary in the competitive field of transportation by air. Thus, food and related items cannot be considered essential tangible personal property ‘used immediately and principally’… to transport passengers by air in its role as a common carrier.
The Virginia Supreme Court supported this position by finding that food and related items were not served on all flights, but only on flights that occurred during normal meal hours, and the airlines fares on identical flights were the same whether or not the provisions of a meal were included. The Court also noted that, there was no merit to the argument that the items were purchased exempt for resale as the passenger could not choose the meal, nor the price paid for the meal during the flight. Thus, the Court concluded, food and related items are not considered to be used directly by an airline operating in interstate commerce in the rendition of its common carrier service.
The Taxpayer’s argument that the sales and use tax exemption provided to airlines for purchases used or consumed by the airline should extend to the purchase of all items because of its scheduled air service is incorrect. The exemption set forth in Virginia Code § 58.1-609.3 6 does not apply to the purchase of food and related items served to passengers during flights, as discussed above. Accordingly, purchases of these items do not qualify for the exemption provided in Virginia Code § 58.1-609.3 6 and are subject to tax.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia section and regulation 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 response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3492J