Tax Type
Retail Sales and Use Tax
Description
Food service management fees
Topic
Basis of Tax
Collection of Tax
Taxability of Persons and Transactions
Date Issued
12-09-1985
December 9, 1985
Re: §58.1-1821 Application/Sales and Use Tax
Dear ****
This will refer to my determination of November 21, 1983 in the above referenced matter and our meeting of March 27, 1984, in which I agreed to reconsider my previous determination.
After reanalyzing the department's previous position and consulting with the department's legal counsel, I find nothing to sway me from my previous determination in this matter. I continue to find your client's provision of food services on the basis of the reimbursement of costs, a fixed management fee, ant a five percent overheat and administrative fee to be a taxable sale of food ant related services. While your client's customers were obviously interested in obtaining the expertise of a food service company, it seems obvious that the "true object" of the customers was to obtain food for consumption by their patients, employees, ant guests.
The department's position in this matter is bolstered by the opinion rendered in First National Bank of Fort Worth v. Bullock, 584 S.W.2d 548 (Tex. Civ. App. 1979). In that case, the total consideration paid to a food service by a customer for providing meals without charge to the customer's employees was found taxable.
Upon review of the representative contract provided, I also find no evidence that your client operated as the agent of its customers (see discussion of agency for Virginia sales and use tax purposes in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd., 569 F. 2d 811 (4th Cir. 1978)). Even if your client had acted as the agent of its customers or if its customers had themselves provided your client with all necessary food, I feel that the entire consideration paid your client would still be taxable. Under such a scenario, your client would be changing the form or state of food provided by its customers. Such an operation constitutes "fabrication" under the provisions of Section 63O-10-37 of the Virginia Retail Sales and Use Tax Regulations and "the fabrication of tangible personal property for consumers who furnish...the materials used in fabrication" is deemed a taxable sale under the provisions of Section 58.1-602.16 of the Code of Virginia. The taxable amount in such a transaction would be the total amount charged for fabricating the customer provided food, i.e. the management fee and any other charges.
Based upon the foregoing, I must consider the assessments issued to your client to be proper and payable. As noted in our meeting, however, there may be some basis for the submission by your client of an offer in compromise under the provisions of Virginia Code Section 58.1-105.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner