Tax Type
Retail Sales and Use Tax
Description
Food service; Resale of food; Management fees
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
10-28-1985
October 28, 1985
Dear ****
This will reply to your letter of October 15, 1984, in which you submit an application for correction of sales and use tax assessed to * * * as the result of an audit.
FACTS
* * * ("Taxpayer') has contracted the operation of its food service facilities to * * * ("Food Service'). In connection with such contract, the Food Service procures food and supervises the preparation and serving of such food to the patients, staff, employees, and visitors of the Taxpayer. The price of the food sold to staff, employees, visitors, etc., is set by the Taxpayer.
The Taxpayer is contracturally bound to reimburse the Food Service for all food and food supplies purchased on its behalf. Title to such food and food supplies rests with the Taxpayer at all times as do receipts from the sale of food to staff, employees, visitors, etc. In addition to the reimbursement of expenses, the Taxpayer pays the Food Service a weekly management fee.
An audit of the Taxpayer produced an assessment for its failure to remit the tax on management fees it paid to the Food Service for the preparation of food. The Taxpayer contests such assessment, asserting that the Food Service merely provided a manager and dietic services with the food in question having been prepared in its own facility by its own employees.
DETERMINATION
In this matter, the Taxpayer, wishing to provide food for its patients, staff, employees, visitors, etc., contracted with a food service for the management of its food service facilities. In consideration thereof, the Taxpayer reimburses the Food Service for the cost of food and food supplies needed to run the food service operation and pays the Food Service a management fee.
The price of food sold at the Taxpayer's facilities is set by the Taxpayer and all receipts from such sales become the Taxpayer's property. Furthermore, the contract between the Taxpayer and Food Service specifies that title to all food purchased by the Food Service on behalf of the Taxpayer shall rest with the Taxpayer "at all times.' Accordingly, the actual sale of food to the Taxpayer's staff, employees, visitors, etc., is made by the Taxpayer. In this case, the Food Service merely makes sales of food to the Taxpayer for resale to its staff, employees, visitors, etc. As it is part of a resale transaction, the charge from the Food Service to the Taxpayer (including management fees) is not taxable.
The resale exemption does not apply, however, when the Food Service furnishes food for the Taxpayer's own use. Such food includes meals served to patients, "free' meals provided to visitors, and food furnished to the Taxpayer for special functions. In such instances, the Taxpayer as the ultimate consumer of the food must remit the tax based upon the total price for which the food was purchased. (See Section 58.1-602.17 of the Code of Virginia), including that portion of management fees attributable to such purchases.
Based upon the foregoing, the department's audit will be revised to delete that portion of management fees paid with respect to food for resale by the Taxpayer. The balance of the management fees paid will remain taxable, however.
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner