Tax Type
Retail Sales and Use Tax
Description
Food service operation
Topic
Taxability of Persons and Transactions
Date Issued
03-21-1986
March 21, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear ***************
This will reply to *************** letter of October 12, 1984, in which was submitted an application for correction of sales and use tax assessed to *************** as the result of an audit. This will also reference your letter of November 22, 1985, in which you submitted additional information on the operation of *********************.
At issue here is the application of the sales and use tax to management fees paid by ************** (Clients) to********** (Taxpayer) for the operation of the clients' food service facilities. The department has recently issued a determination in a similar matter, a copy of which is enclosed. As you can see, the department in that determination agreed to waive the tax on that portion of management fees relating to sales of food to the employees and guests of the food service's clients. That determination was based upon the fact that it was the clients and not the food service that actually sold the food to the clients' employees and guests.
In the enclosed determination, the clients of the food service were deemed to be the sellers of the food inasmuch as they set the price of the food, held title to all food and supplies purchased by the food service, and held title to all receipts from sales to their employees and guests. You related in your November 22, 1985 letter that the taxpayer in this case retains all receipts from the operation of the food service for its clients, but that its clients set the price of the food sold. As there is apparently no contract between the taxpayer and its clients, it is not known with whom title to the food purchased by the taxpayer rests. Accordingly, it is not clear, based upon the facts presented, whether the taxpayer or its clients are the sellers of food in this case.
Because I do not possess information to clearly establish that the taxpayer's clients are the sellers of food to their employees and guests, I cannot find basis for relief of this assessment. I am willing, however, to review any additional information you might wish to submit that would establish who the actual seller of the food was. Such information might include a copy of the taxpayer's articles of incorporation and any other information on the relationship and financial arrangements between the taxpayer and its clients. Of particular interest would be information on how the sales receipts and management fee are used by the taxpayer. Also, it would be useful to learn whether the clients' employees who work in the food service operation are paid in whole or in part by the taxpayer. If you anticipate that it will take more than thirty days to provide such information, it is suggested that the taxpayer pay the assessment issued to it; otherwise, collection action may result.
Additional information may be submitted to the department's Tax Policy Division. If necessary, payment of the assessment may be made to the department's Technical Services Section. The mailing address of both units is P. O. Box 6-L, Richmond, Virginia 23282.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner