Tax Type
Retail Sales and Use Tax
Description
Services; Miscellaneous service enterprises; Labor charges of caterer
Topic
Taxability of Persons and Transactions
Date Issued
02-24-1993
February 24, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This will reply to your letter of October 13, 1992 in which you seek correction of sales and use tax assessed to your client, ********( the Taxpayer), as the result of an audit for the period February, 1989 through January, 1992.
FACTS
The Taxpayer operates as a restaurant and also provides a catering service. As the result of the department's audit, the Taxpayer contests the following: 1) the application of tax to labor charges associated with the provision of its catering service, 2) the application of tax to purchases of flowers for use in floral arrangements provided in connection with the catering service and 3) the validity of the assessment based on the statute of limitations.
DETERMINATION
Labor charges
Va. Code §58.1-603 imposes the sales tax on "the gross sales price of each item or article of tangible personal property when sold at retail or distributed in this Commonwealth." Further, Va. Code §58.1-602 defines "sales price" as the total amount for which tangible personal property or services are sold, including any services that are a part of the sale. The only items excluded from the sales price are any cash discounts allowed and taken or finance charges, carrying charges, service charges or interest from credit extended on sales of tangible personal property under conditional sales contracts or other conditional contracts providing for deferred payments of the purchase price.
The Taxpayer engages personnel services in connection with the provision of its catering service. Any charges for services such as serving, setting-up, cleaning or other services are subject to the tax as a component of the gross sales price. Based on the above, the Taxpayer is required to charge tax on the total charges for catering an event to include all charges for services provided in conjunction with the provision of food services. I have enclosed P.D. 88-147 (6/20/88) and P.D. 89-167 (5/22/89) which further discuss this issue. Please take note that delivery charges are exempt when separately stated pursuant to Virginia Regulation 630-10-107.
Flower Purchases
(VR) 630-10-64(F) provides that "items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment...tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption." The same is equally true of a catering business which purchases or leases these items for its own use in preparing and serving meals.
It is my understanding that the Taxpayer staffs a florist on site. The florist creates floral arrangements for the Taxpayer's catered events and occasionally sells flowers to customers without the provision of food services. The Taxpayer may purchase flowers under a resale exemption certificate when such flowers will be sold in a retail transaction. However, the Taxpayer's purchases of flowers which are incorporated into floral arrangements to be provided in conjunction with the provision of food services are subject to the tax at the time of purchase by the Taxpayer. The charge for the floral arrangement is also subject to the tax as part of the total charges to the customer for the catering service. Notwithstanding, the Taxpayer may receive a credit for any exempt purchases of flowers for resale. (See Virginia Tax Bulletin 92-10, copy enclosed)
Statute of Limitations
The Taxpayer further contends that the audit assessment is invalid as its assessment date is outside the statute of limitations. Va. Code § 58.1-220 allows the department and a taxpayer to agree to extend the period of an assessment of taxes. The department's records indicate that the Taxpayer agreed via its representative to such an extension of the period of limitations by waivers signed on March 11 and June 26, 1992. The Taxpayer's representative was duly authorized to sign the waivers by virtue of the Power of Attorney and Release form dated January 21, 1992. Therefore, I find no basis for correction of the assessment on the grounds of expiration of the statute of limitations.
Based on the foregoing, the auditor will make an adjustment regarding the flower purchases for resale and any separately stated delivery charges (if applicable) upon receipt of supporting documentation within 30 days from the date of this letter; however, the remainder of the assessment is proper and valid.
Accordingly, the audit package will be returned to the ******* District Office for revision by the auditor. The Taxpayer will receive a revised audit report and "Notice of Assessment" reflecting any revisions and the recomputation of interest accrued to date which should be paid within 30 days to avoid the accrual of additional interest charges and collection activity.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6497J
Rulings of the Tax Commissioner