Tax Type
Retail Sales and Use Tax
Description
Catering labor charges; Leases and rentals
Topic
Taxability of Persons and Transactions
Date Issued
05-22-1989
May 22, 1989
Re: §58.1-1821 Application: Sales and Use Tax
Dear**********************
This will reply to your letter dated January 18, 1989 in which you seek the correction of sales and use tax assessed your client, ************** as a result of a recent audit.
FACTS
***********("The Taxpayer") is in the business of providing store sales of food and catering services. The Taxpayer was audited for the period October 1985 through July 1988 and held liable for failure to remit the tax on untaxed purchases and collect the tax on separately stated charges for personnel labor, equipment and services provided in conjunction with its catering services.
The Taxpayer is contesting the assessment on personnel labor charges based on the exemption provided in Virginia Code §58.1-602(17) for "an amount separately charged for labor or services rendered in...applying...property sold." The Taxpayer maintains that since the food is prepared at its store and is ready for consumption, the additional service fees charged fall within the meaning of applying a product for its purchased use.
The Taxpayer is also contesting the assessment on separately stated charges for equipment and supplies, such as serving trays, cloth linens, tables, etc., that it rents from various vendors. The Taxpayer maintains that the rental of an item for a specific function should be considered a single transaction. The Taxpayer further asserts that since it pays the tax to rental firms at the time equipment and supplies are rented, the tax does not have to be collected from its customers. In the alternative, the Taxpayer seeks to lease its equipment under a Certificate of Exemption as provided in §630-10-57(C) of the Virginia Retail Sales and Use Tax Regulations and add the tax to the charges made to its customers.
DETERMINATION
Sales price is defined in §630-10-95 of the Virginia Retail Sales and Use Tax (copy enclosed) as "the total amount for which tangible personal property or taxable services are sold and includes any services in connection with such sale." The only items excluded from the tax are those enumerated in the enclosed copy of Va. Code §58.1-602(17). Therefore, the Taxpayer should apply the tax to the total charge for catering an event, including the cost of labor equipment, supplies or other services provided in connection with its catering service, whether separately stated or not.
A caterer is in the business of providing food services to clients. Such services may include not only preparing the food, but also delivering serving, setting-up cleaning, or other services contracted for by the client. While separately stated delivery charges are exempt from the tax under Va. Code §58.1-602(17), the tax applies to the cost of labor for other services provided in conjunction with a catering business. I cannot agree that personnel labor charges for such services represent amounts separately charged "for labor or services rendered in installing, applying, or remodeling or repairing property sold." The word "apply" is defined in Webster's New Collegiate Dictionary (1981) as "to lay or spread on ([apply] varnish to a table)." Therefore, I must conclude that this exemption has no application to the labor charges at issue in this instance and the tax was properly assessed.
Additionally, the department recently issued a ruling letter addressing the application of the tax to personnel labor used in conjunction with a catering business. A copy of PD 88-147 is enclosed for your perusal.
§630-10-64 of the Virginia Retail Sales and Use Tax Regulations (copy enclosed) provides that "[r]etail sales of meals by restaurants,...caterers...and others are taxable." The regulation further provides that "items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption." (Emphasis added.) A restaurant's purchase or lease of linens, dishes. etc. is not a part of the sale of the meal and thus is not deemed to be for resale. Instead these costs are passed on to the customer in the price of the meal. The same is equally true of a catering business which purchases or leases these items for its own use in preparing and serving meals.
Consequently, the tax is applicable to the rental of plates, glasses, and other such items for use in serving meals. The Taxpayer is not in the business of renting tangible personal property, but instead uses rented property for serving meals in conjunction with its catering business. Therefore, these items may not be purchased under a Certificate of Exemption.
Thus, I find no basis for a correction of the assessment. Based on the possibility of doubtful collectibility, the Taxpayer will be allowed thirty days in which to propose an offer in compromise as provided in Va. Code §58.1-105. Please contact the department's Tax Policy Division if you have any questions regarding the determination reached in this letter or to submit an offer in compromise.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner