Tax Type
Retail Sales and Use Tax
Description
Government transactions; Box lunches sold to government
Topic
Taxability of Persons and Transactions
Date Issued
05-29-1996
May 29, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This is in reply to your letter of November 29, 1995 in which you seek correction of a retail sales and use tax assessment for ****** (the "Taxpayer").
FACTS
The Taxpayer operates as a sandwich shop. An audit of the Taxpayer for the period October 1992 through July 1995 produced an assessment for its failure to remit the sales tax on sales of box lunches to state and local government agencies.
The Taxpayer contests the inclusion of the box lunch sales in the audit and contends that the sale of food to government agencies is exempt from the tax based on Code of Virginia § 58.1-609.1 (4).
DETERMINATION
Code of Virginia § 58.1-609.1 (4) provides an exemption from the sales tax for purchases of tangible personal property for use or consumption by the federal government and state and local governments of Virginia. Virginia Regulation (VR) 630-10-45, copy enclosed, provides further guidance on the exemption. Section 1.2 states that "charges for meals, catered events, lodging, and other accommodations ... are subject to the tax when paid for by the state or local government ... or employees of such, regardless of whether the purchases are made pursuant to required official purchase orders." Emphasis added.
In addition, the Virginia Attorney General has issued an opinion which addresses the application of the government exemption to catered meals purchased by the state with public funds and consumed by guests attending a conference hosted by the state. (Att'y Gen. Ann. Rep.: 1969-1970 at 291) The opinion referenced "use" (as defined in Code of Virginia § 58.1--602) as meaning the exercise of any right or power over tangible personal property incident to the ownership thereof. The Attorney General concluded that the consumption of meals by banquet guests did not sufficiently reflect "use" or the exercise of control by the Commonwealth over the food to warrant exemption.
The Taxpayer believes that its case is distinguishable from that addressed in the opinion. The Taxpayer asserts that it does not provide the taxable services associated with the serving of catered meals. Furthermore, the Taxpayer perceives the state's exercise of rights and power over the consumption of the food, in this instance, to be substantially greater because the box lunches are delivered to and consumed at the government agency's office. Lastly the Taxpayer argues that the opinion speaks to the broader issue of lodging and meal services provided to attendants at a conference, rather than the issue of separate events - the preparation and delivery of food and the consumption of such food. As such, the Taxpayer believes that sales of box lunches for consumption by employees of government agencies qualify for exemption.
The relevant point with respect to the taxable status is that the food is consumed by individuals as opposed to used by the government agency in its operations or in the provision of some service. The department's policy regarding this issue has been addressed in a number of prior rulings, a sample of which is enclosed. Additionally, the department's policy is further supported by an informal opinion of the Attorney General dated January 11, 1993, copy enclosed, which affirms the 1970 Attorney General's opinion.
It is my understanding that sales were not held taxable in the audit in instances where an exemption certificate was received in good faith. The auditor will remove the Department of Health invoices based on the exemption certificate attached to your letter. For future audit purposes, sales will be held taxable in accordance with the policy set forth in this letter. You will receive an adjusted bill including interest accrued to date. If you have additional questions, please contact ***** in the Office of Tax Policy at*************
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10621J
Rulings of the Tax Commissioner