95-11 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Tax base; Lump-sum charge

Topic

Basis of Tax

Date Issued

01-19-1995

January 19, 1995

Re: §58.1-1821 Application: Retail Sales and Use Tax

Dear******************

This will reply to your letter of May 16, 1994 in which you seek correction of a sales and use tax assessed to your client, ***********(the "Taxpayer") for the period May, 1991 through February, 1994.

FACTS

The Taxpayer is a restaurant and lounge. Charges for sales of alcoholic beverages are made on the same ticket as meals. The Taxpayer collects the applicable sales tax on the meal but the sales tax is not explicitly charged on the alcoholic beverages. The alcoholic beverage receipts from the lounge do not separately state the amount of the tax; instead, a lump sum charge to the customers is shown on the receipt. The tax was remitted based on a percentage of the gross receipts which took into account the inclusion of the sales tax. The auditor assessed tax on the total amount of gross sales as reported by the cash register receipts.

The Taxpayer protests the assessment, maintaining that the sales tax is included in the price of the alcoholic beverages and the method used in calculating the tax has resulted in the proper tax being remitted to the department. The Taxpayer further requests that they be allowed to continue using a lump sum price for alcoholic beverages.

DETERMINATION

Under Code of Virginia §58.1-625 (copy enclosed) a dealer is required to separately state the amount of the tax and add the tax to the sales price or charge.

Virginia Regulation (VR) 630-10-24(A) (copy enclosed) provides additional guidance on the above statutory requirement, explaining "[i]dentification of the tax by a separate writing or symbol is not required provided that the amount of the tax is shown as a separate item on the record of the transaction." (Emphasis added).

The statute and the regulation clearly set forth the requirement that the tax must be separately stated and added to the price of goods sold at retail. When the Taxpayer included the tax in the sales price of alcoholic beverages but did not list the tax separately on the record of the transaction (the cash register receipt), it failed to meet this requirement.

Virginia law allows the inclusion of the sales tax within the selling price only in very limited situations. Code of Virginia §58.1 -614 (D) (copy enclosed) provides that when a dealer is able to demonstrate to the satisfaction of the Tax Commissioner that it is impractical to collect the tax in accordance with the bracket system provided for in Code of Virginia §. 58.1-628, the taxpayer may be authorized to remit an amount based on a percentage of gross receipts which takes into account the inclusion of the sales tax. In this case, the Taxpayer did not have permission to account for the tax as specified above. Accordingly, there is no basis for revising the assessment.

However, based on the information provided and subject to the following conditions, permission is hereby granted for the Taxpayer to include the tax in the beverage prices, prospectively from January 1, 1995. The Taxpayer's price listings for and signs advertising beverages should indicate that the sales tax is included in the cost of the beverages. In addition, the Taxpayer's customer checks should contain a similar statement. It should be noted further that this permission applies only to the retail sales and use tax and has no application to any local restaurant or meals tax. It is our understanding that the Taxpayer's locality does impose a local meals tax. Therefore, the taxpayer will have to seek separate permission from its locality to include the local meal and beverage tax in its menu item prices.

Based on the current sales and use tax rate of 4.5%, if the Taxpayer's locality does not grant permission to include the sales tax which must be remitted to the department, the Taxpayer should divide the total receipts for the period, inclusive of the sales tax collected but exclusive of any local meals tax collected, by a factor of 1.045. However, based on the same current 4.5% sales and use tax rate, if the Taxpayer's locality grants it permission to include the local meals tax in the beverage prices, and if such meals tax rate is equal to 4%, to derive the amount of sales tax which must be remitted to the department, the Taxpayer should divide the total receipts, inclusive of the sales and use tax and local meal tax collected by a factor of 1.085.

The Taxpayer will receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest. If you have any questions regarding this determination, you may contact********************.

Sincerely,

- - - - Danny M. Payne
        Tax Commissioner

OTP/8776T

Rulings of the Tax Commissioner