Tax Type
Retail Sales and Use Tax
Description
Provision of food and services to airline
Topic
Taxability of Persons and Transactions
Date Issued
10-21-1985
October 21, 1985
Re: §58-1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of May 10, 1985, in which you submit an application for correction of sales and use tax assessed to ***** as the result of a recent audit.
FACTS
***** ("Taxpayer") is engaged in the provision of food and certain services to airlines operating out of Dulles International Airport. A recent audit of the taxpayer produced an assessment for its failure to collect the sales tax from airlines on sales of ice as well as on charges for dishwashing and port fees made to airlines in connection with the sale of tangible personal property.
The taxpayer contests the above assessment, contending that the wet ice it sells is in
turn resold by airlines" to their passengers and that dry ice sold to airlines is in fact an exempt packaging material under the provisions of Section 630-10-49 of the Virginia Retail Sales and Use Tax Regulations. The taxpayer also asserts that the dishwashing charges were entirely separate from the sale of tangible personal property to airlines. Lastly the taxpayer asserts that port fee charges represent rent paid by the taxpayer for the use of airport facilities and are therefore nontaxable.DETERMINATION
Section 58.1-603 of the Code of Virginia imposes the sales tax based upon the "sales price of each item or article of tangible personal property whey sold at retail or distributed in this State" unless the transaction is of a type specifically exempted from the tax in Virginia Code Section 58.1-608. "Retail sale" is in turn defined as "a sale to any person for any purpose other than resale."
Under the foregoing statutes, the sale of wet ice to airlines would be subject to the tax unless such items are resold by airlines to their customers. The mere furnishing of items to passengers by an airline as part of their air fare does not constitute a "resale" so as to relieve the taxpayer from the collection of tax, Commonwealth v. United Airlines, 219 Va. 374, 248 S.E. 2d 124 (1978) ; thus, the taxpayer must show here that wet ice was actually, resold for consideration by its airline customers. It is my understanding, however, that airlines generally furnish iced non-alcoholic beverages to their passengers free of charge. In any event, information has not been furnished to substantiate what portion if any, of such items were in fact resold, thus I find no basis for relief of tax.
§630-10-49 of the Retail Sales and Use Tax Regulations provides that " [i]ce is not taxable...if it is used as a packaging material in a package containing perishable tangible personal property for sale." This provision is based upon the policy, set forth in Sales and Use Tax Circular 9, that a wholesaler or retailer may purchase tax exempt those materials used to package the products that they sell. The resale exemption, applies in such circumstances as the packaging materials pass to the customer with the product purchased. As the exception noted in Regulation §630-10-49 applies only to ice purchased by the seller for resale, it naturally does not apply to the retail sale of ice, as stated in the first paragraph of Regulation §630-10-49:
The tax applies to retail sales of ice, including ice used to coal or chill storage rooms, compartments, delivery trucks, etc., for keeping perishable items.
Under the "sales price" concept described in detail below, when charges for packaging materials are separately stated, the tax applies both to the price paid for the product and the charge for the packaging materials. As the airline customers here are the ultimate customers of dry ice sold by the taxpayer, the price paid by the airlines for the ice is taxable and is properly included in this audit.
Virginia Code Section 58.1-602.17 defines "sales price", upon which the tax is based, as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale ...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." Emphasis added. As charges for washing airline owned equipment are not connected to the sale of food by the taxpayer, such charges are not subject to the tax. It is my understanding that such charges have been previously removed from the department's audit; if this is not the case, please advise and necessary revisions will be made. However, charges to airlines representing port fees are taxable when added to the cost of taxable tangible personal property. While such fees may represent reimbursement for rent expenses incurred by the taxpayer, they are taxable as are other expenses of doing business when added to the cost of taxable tangible personal property.
Based upon the foregoing, I see no basis at the present for revising the department's audit, rendering the assessment here due and payable.
Sincerely
W.H. Forst
Tax Commissioner
Rulings of the Tax Commissioner