Tax Type
Retail Sales and Use Tax
Description
Leases and Rentals; Catering Supplies
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
08-24-1992
August 24, 1992
Re: §58.1-1821 Application: Sales and Use Tax
Dear*********************
This will reply to your letter of August 29, 1991 in which you seek relief from sales and use tax assessed as a result of a recent audit of your client, **************** (the "Taxpayer").
FACTS
The Taxpayer is engaged in the retail rental business. The Taxpayer rents tables, chairs, serving trays, flatware, linens and various other items related to conducting social affairs. Although the Taxpayer holds itself out to the general public, its primary client is a sister corporation in the business of providing catering services. The sister corporation, although having common ownership with the Taxpayer, is operated and exists as a separate and distinct legal entity. The two corporations keep separate records, employ their own employees with independent payrolls, and are both separately registered for sales and use and employee withholding taxes. The sister corporation issued to the Taxpayer a resale exemption certificate, Form ST-10, in order to rent those items used in its catering business tax exempt. The sister corporation separately stated on its customers' billings all tangible personal property used in providing their catering services and collected the sales and use tax from their clients. Upon audit by the department, the Taxpayer was assessed sales and use tax on those items rented to the sister corporation for use in providing catering services. The Taxpayer is taking issue with the taxing of such items as being a rental for resale, therefore, not taxable.
DETERMINATION
Sales price is defined in Virginia Regulation 630-10-95 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 exemption for services are set forth in Va. Code §58.1-608(A)(5)(a) which provides a sales and use tax exemption for "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made...". Therefore, based on the fact that meals as provided by a caterer do not represent "inconsequential elements," the total charge for catering an event, including the cost of labor, equipment, supplies or other services provided in connection with its catering service would be taxable.
Virginia Regulation (VR) 630-10-64 provides that "retail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable." (Emphasis added.) This regulation goes on to say, "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." Therefore, a caterer's purchase or lease of tables, chairs, linens, flatware, dishes, glasses, etc., is not a part of the sale of the meal, but is consumed by the caterer in providing the meal, thus not exempt under a resale exemption certificate. The cost of such consumables, including the sales tax, is passed on to the customer in the price of the meal. The department's position on the catering industry is long-standing and well established as set forth in P.D. 89-167, dated 5/22/89 (copy enclosed).
Further, our auditors were unable to identify any transactions in which the sister corporation made rentals independent of providing catering services, so as to qualify for the resale exemption.
Based on the above, I find no basis for relief of tax and interest associated with the recent sales and use tax audit of the Taxpayer. If you should have any further questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner