Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal; Computer training services
Topic
Taxability of Persons and Transactions
Date Issued
08-12-1994
August 12, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will reply to the letter of October 18, 1993 from *********requesting correction of sales and
use tax assessed to your client **********(the Taxpayer).
FACTS
The Taxpayer operates a resort and conference center and provides for a variety of other services including food services. The Taxpayer was audited for the period June 1990 through January 1993 and during that period contracted for the purchase and installation of a computer system. The Taxpayer protests the auditor's application of the tax to a charge for training services separately billed and associated with the installation of the computer system.
Additionally, the Taxpayer protests the tax applied to charges for flower arrangements provided in conjunction with the provision of
DETERMINATION
Computer software training: The Taxpayer's purchase of a computer system consisted of hardware and prewritten software designed specifically for the hotel industry. A separate system was purchased and installed in the Taxpayer's restaurant facility and interfaced with the system purchased for the hotel facility. It is the charge for training associated with the purchase of the restaurant computer system upon which the auditor has assessed the tax as services rendered in connection with the sale of tangible personal property. The Taxpayer contends that the training charge qualifies as a professional or personal service transaction exempt under Va. Code § 58.1-609.5(1).
Va. Code §58.1-609.5(1) provides an exemption for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made..." Generally, the total charge for tangible personal property, including services such as consulting, training, etc. provided in connection Wit]1 the sale of tangible personal property, are subject to the tax when such services are included in the price of the tangible personal property sold or leased. However, as set forth in P.D. 84-257 (12/28/84), copy enclosed, the tax does not apply to the charge for training which involves only the provision of a service. As the charge for training in this instance is a separate and distinct transaction, the tax would not apply.
Flower purchases: The Taxpayer purchases flower arrangements at a discount and subsequently provides the flower arrangements in conjunction with its catering services to its customer at a mark-up. The Taxpayer argues that it makes no use of the flower arrangements and that the customer is entitled to remove the arrangements after the catered event. The flower charges are separately stated and not included in the cost of the meal. As such, the charge to the customer constitutes a retail sale and therefore the purchase of the flower arrangements qualifies as exempt purchases for resale.
Virginia Regulation (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.
Based on the regulation, the Taxpayer is required to pay the tax on the cost price of the flower arrangements and must apply the tax to the total charge to the customer. It has long been established that a hotel, restaurant or caterer is the taxable consumer of all items and supplies used in connection with providing a meal, except that the food itself and related disposable items may be purchased under the resale exemption. This is true regardless of the method
of billing the customer. While the charge to the customer for the flower arrangements may be separately stated, this does not preclude the application of the tax since the flowers are provided as a component of the catering service.
The application of the tax to the flower charges is discussed in P.D. 93-33 (2/24/93), P.D. 93-58 (3/5/93), and P.D. 94-39 (3/7/94). Virginia Tax Bulletin 92-10 further illustrates the application of the tax regarding tangible personal property used in the rendition of catering services. (Copies enclosed)
The audit will be revised in accordance with the determination reached in this letter and a revised Notice of Assessment will be sent to the Taxpayer as soon as practical.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7439J
Rulings of the Tax Commissioner