Tax Type
Retail Sales and Use Tax
Description
Food and grocery items; Resales; Food delivery service, Meals
Topic
Taxability of Persons and Transactions
Date Issued
01-08-1998
January 8, 1998
Dear****:
This is in response to your letter of September 12, 1997, in which you seek correction of sales and use tax assessments issued to ***** (the "Taxpayer') for the period December 1993 through November 1996.
FACTS
The Taxpayer contracts with restaurants to advertise and deliver the restaurants' menu items to customers. The Taxpayer publishes a restaurant guide which shows the menu items for each restaurant. These menus appear in the restaurant guides on separate pages for each restaurant and are generally reduced-size menus of the particular restaurant. Each menu for a particular restaurant shows the restaurants' name and trademark as well as the menu items and prices thereof.
Using the restaurant guides, customers contact the Taxpayer to place their orders. Customers tell the Taxpayer which menu items they want and from which restaurant. The Taxpayer also takes other relevant information from the customer, including the delivery address. The Taxpayer then contacts the restaurant to order the food, picks up the food from the restaurant, and then delivers the food to the customer.
Payment is remitted by the customers to the Taxpayer. This payment is for the food (priced as shown in the restaurant guide menu), soft drinks (which are provided by the Taxpayer - not the restaurants), and a delivery service charge. In addition, the Taxpayer charges and collects from its customers the sales tax on the amount of food and drink sold. The Taxpayer subsequently pays the restaurant for the food delivered. The Taxpayer retains a predetermined percentage of the food charge as compensation for providing the order taking and delivery for the restaurant. I understand that the Taxpayer also retains a marketing fee based on a percentage of gross receipts.
The question at issue in this case is to determine which party, the Taxpayer or the restaurant, is responsible for remitting the sales tax to the department. In this regard, the Taxpayer has been remitting the tax to the restaurants with the understanding that the restaurants remitted the tax to the department.
DETERMINATION
Code of Virginia Sec. 58.1-603 imposes the sales tax upon "every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth....' A "retail sale' is defined in Code of Virginia Sec. 58.1-602 to mean "a sale to any person for any purpose other than for resale in the form of tangible personal property....' That same section 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....'
I find that the transactions between the Taxpayer and the customers constitute taxable transactions under the law. The Taxpayer in this case goes well beyond providing merely a delivery service for its restaurant clients. The Taxpayer solicits orders from customers, takes and receives the orders, arranges for pick-up and delivery of the property, makes supplemental sales of soft drinks, and takes payment from its customers. Accordingly, the customer is not making a purchase from the restaurant but rather from the Taxpayer.
The Taxpayer is therefore obligated to collect the tax from the customer on the total sales price and remit the tax to the department. The restaurants' role is that of a supplier to the Taxpayer, and the sales of food by the restaurants to the Taxpayer are sales for resale. These sales by the restaurant to the Taxpayer are exempt for resale provided that the restaurants have on file a fully completed resale exemption certificate from the Taxpayer. Further, I understand that subsequent to the current audit the Taxpayer has begun to remit the tax in accordance with this determination. The Taxpayer is to continue doing so.
Pursuant to this determination, the Taxpayer would be responsible for the entire amount of tax collected from customers. Yet the audit staff assessed only that portion of the tax which they found was generally not being remitted to the department by the restaurants. This procedure was made in a good faith effort to avoid making an assessment for taxes which were already remitted. The auditor's procedure in this case appears especially reasonable given the Taxpayer's background. I note, for example, that a prior audit held the Taxpayer liable for untaxed sales. Both before and immediately after that prior audit, the Taxpayer collected and remitted the tax on its sales before inexplicably canceling its sales tax registration.
In effect, the assessed liability represents about 30% of the tax collected by the Taxpayer. I am mindful that the assessment in this case is to some extent an estimate. Based on the information before me, that estimate is reasonable. Nevertheless, the department will certainly review any information the Taxpayer can provide which indicates that the assessment is overstated.
In summary, the assessments are found to be correct. Revised bills, with interest accrued to date, will be sent to the Taxpayer as soon as practicable. No additional interest will accrue on this bill provided payment is made within 30 days.
Finally, I have enclosed a complete set of the sales and use tax regulations as set out in Title 23 of the Virginia Administrative Code (VAC). 23 VAC 10-210-930 addresses retail sales of meals. Also see 23 VAC 10-210-6000 which addresses transportation and delivery charges.
Please contact ***** in the department's Office of Tax Policy at ***** if you have any questions regarding this letter.
Rulings of the Tax Commissioner