Tax Type
Retail Sales and Use Tax
Description
Penalties and Interest; Waiver of penalty
Topic
Collection of Delinquent Tax
Date Issued
05-15-1997
May 15, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This is in reply to your letter in which you seek correction of a sales and use tax assessment issued to ******** (the Taxpayer) for the period January 1993 through December 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates a catering service. As a result of the department's audit, an assessment was made for untaxed catering services. At issue is the taxing of catered meals sold to federal and local government agencies. The Taxpayer protests the tax assessed to such catering services and maintains that such sales were exempt pursuant to exemption certificates.
DETERMINATION
Code of Virginia § 58.1409.1(4) provides an exemption from the sales tax for purchases of tangible personal property by federal governments and state and local governments of Virginia. Title 23 of the Virginia Administrative Code (VAC) 10-210-690, copy enclosed, provides further guidance on the application of the exemption. Section (B) of the regulation provides that charges for meals and catered events are subject to the tax when purchased by a state or local government or public institution of learning, regardless of whether the purchases are pursuant to official purchase orders.
On the other hand, when meals and lodgings are sold to the federal government and its employees traveling on government business, such sales are exempt from tax if payment is made directly by the federal government pursuant to a required official purchase order to be paid out of public funds. However, sales to the federal government without the required purchase order, or to its employees for their own consumption or for use in carrying out official government business, are taxable.
State and local governments
The Taxpayer sold catered meals to the local government that were consumed by individuals during an awards banquet. The Taxpayer maintains that the local government issued an exemption certificate for such catered meals.
The issue of meals and catering services provided to state and local governments has been addressed in several rulings by the department. The department has consistently held that charges for meals and catered events are subject to the tax when paid for by the state and local governments regardless of whether the purchases are made pursuant to required official purchase orders. See the enclosed Public Document's (P.D.) 96-10 (3/4/96) and 96-153 (6/24/96).
As can be seen from the above, the exemption does not apply to the Taxpayer's sale of catered meals to the local government for such purposes. Accordingly, the Taxpayer's sale of catered meals to the local government were correctly held in the audit.
Federal government
The Taxpayer sold catered meals to federal government agencies for consumption by federal employees during special events and meetings. The Taxpayer maintains that the government agencies provided exemption certificates for each of the catered events.
Based on the above regulation, meals sold to the federal government and its employees are exempt if the payment is made directly by the federal government pursuant to a required official purchase order to be paid out of public funds. It is my understanding that the Taxpayer did not provide sufficient evidence that the sales in question qualify as exempt sales to the federal government. I would also note that on two separate occasions the Taxpayer requested that the department give the Taxpayer additional time in order to obtain additional information with respect to these contested sales. However, as of this date the Taxpayer has not provided the department any additional information. In the absence of supporting evidence, I find no basis for adjusting the assessment with respect to these sales.
Penalty
The application of penalty to audit deficiencies is addressed in 23 VAC 10-210-2032 and provides that the application of penalty to audit deficiencies is mandatory and its application is generally determined by the taxpayer's level of compliance with Virginia laws. In order for penalty to be waived on second and subsequent audits, the sales tax compliance ratio must be 85% or better.
A review of the audit indicates that the Taxpayer's sales tax compliance ratio on this second generation audit is 89% and exceeds the level of compliance in order to avoid the application of penalty. As a result, penalty was not applied to the initial assessment. However, penalty was mistakenly applied to the assessment when interest was updated. Accordingly, the assessed penalty will be removed from the assessment.
Summary
The assessment will be adjusted to remove penalty mistakenly applied to the sales tax deficiencies. Based on the information presented, I find no basis for adjusting the audit with respect to catered meals sold to federal government agencies. Nevertheless, I will allow the Taxpayer an opportunity to provide the department with additional information regarding this issue. This information should be sent to******* , Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880 within 60 days of the date of this letter. Upon review and possible revision as a result thereof, a revised Notice of Assessment will be mailed to the Taxpayer. If the documentation is not received within the specified time period, the assessment will be considered correct as issued.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11592T
Rulings of the Tax Commissioner