Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Services; Repair and installation; Catering equipment and services.
Topic
Taxability of Persons and Transactions
Date Issued
04-20-1998
April 20, 1998
Dear*************:
This will reply to your letter in which you seek correction of an assessment issued to ***** (the "Taxpayer'), for the period August 1994 through July 1997.
FACTS
The Taxpayer is a restaurant and caterer that seeks adjustments to an audit conducted by the department for certain sales and purchases which the Taxpayer believes were erroneously assessed. The Taxpayer disagrees with the assessment of sales tax on untaxed labor and service charges made in connection with catered sales of food and beverages. The Taxpayer contests the assessment of use tax on rental charges for equipment used by the Taxpayer as part of its catering services.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-930 (copy enclosed) states that "[r]etail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable.' Sales price is defined in Code of Virginia Sec. 58.1-602 (copy enclosed) as:
the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
Labor Charges
Unless specifically exempt by law, any services provided in connection with the sale of tangible personal property are taxable. The definition of sales price cited above is the basis for this policy. The enclosed copy of P.D. 89-167 (5/22/89) explains the department's longstanding policy on charges for labor and services made by caterers in connection with the provision of food services. Services and labor for preparing food, serving the food, setting up the site, and cleaning are all services contracted for by the client and are taxable because they are provided in connection with the sale of tangible personal property. Thus, sales tax is computed on the total charge for catering an event. Based on our longstanding policy, the auditor correctly held the labor and service charges taxable.
Equipment Rental
The department's policy with respect to equipment rentals is longstanding and has been addressed in a 1992 tax bulletin and in numerous public documents. Title 23 VAC 10-210-930(F) states that "items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption.' In P.D. 93-16 (January 29, 1993, copy enclosed), a taxpayer rented tents which it provided for catered events at the request of its customers. A separate charge for the tents was billed to the customers and the taxpayer argued that the rental of the tents should enjoy the resale exemption because sales tax was collected from the customers on the rental charges. As P.D. 93-16 explains, the rental of the tents is considered part of the total charge for the catering services provided and is included in the taxable charge billed to the customer.
While equipment may be provided at the customer's request and for the convenience of the customer, the equipment is still provided by the caterer as part of the caterer's services. Virginia Tax Bulletin 92-10 (11/4/92, copy enclosed) states, under the section titled "Rental Equipment,' that:
The Taxpayer requests the waiver of interest assessed in the audit because it was unaware of the proper application of sales and use tax to its business. The enclosed copy of Title 23 VAC 10-210-2032(B) addresses the assessment of interest in audits and states that "[t]he application of interest to all audit deficiencies is mandatory and accrues as set forth in 23 VAC 10-210-2030 C.' While I am sympathetic with the Taxpayer, the assessment of audit interest is required by regulation and no basis has been presented to warrant waiver of the interest.
I note that the Taxpayer indicates that payment of the assessment could place a financial burden on its business operations. The department can allow the Taxpayer to make installment payments to reduce this burden. If the Taxpayer desires such a payment plan, or if it has any questions, please contact ***** at *****. To avoid the accrual of additional interest, payment of ***** may be sent to ***** in the Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880.
Dear*************:
This will reply to your letter in which you seek correction of an assessment issued to ***** (the "Taxpayer'), for the period August 1994 through July 1997.
FACTS
The Taxpayer is a restaurant and caterer that seeks adjustments to an audit conducted by the department for certain sales and purchases which the Taxpayer believes were erroneously assessed. The Taxpayer disagrees with the assessment of sales tax on untaxed labor and service charges made in connection with catered sales of food and beverages. The Taxpayer contests the assessment of use tax on rental charges for equipment used by the Taxpayer as part of its catering services.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-930 (copy enclosed) states that "[r]etail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable.' Sales price is defined in Code of Virginia Sec. 58.1-602 (copy enclosed) as:
the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
Labor Charges
Unless specifically exempt by law, any services provided in connection with the sale of tangible personal property are taxable. The definition of sales price cited above is the basis for this policy. The enclosed copy of P.D. 89-167 (5/22/89) explains the department's longstanding policy on charges for labor and services made by caterers in connection with the provision of food services. Services and labor for preparing food, serving the food, setting up the site, and cleaning are all services contracted for by the client and are taxable because they are provided in connection with the sale of tangible personal property. Thus, sales tax is computed on the total charge for catering an event. Based on our longstanding policy, the auditor correctly held the labor and service charges taxable.
Equipment Rental
The department's policy with respect to equipment rentals is longstanding and has been addressed in a 1992 tax bulletin and in numerous public documents. Title 23 VAC 10-210-930(F) states that "items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption.' In P.D. 93-16 (January 29, 1993, copy enclosed), a taxpayer rented tents which it provided for catered events at the request of its customers. A separate charge for the tents was billed to the customers and the taxpayer argued that the rental of the tents should enjoy the resale exemption because sales tax was collected from the customers on the rental charges. As P.D. 93-16 explains, the rental of the tents is considered part of the total charge for the catering services provided and is included in the taxable charge billed to the customer.
While equipment may be provided at the customer's request and for the convenience of the customer, the equipment is still provided by the caterer as part of the caterer's services. Virginia Tax Bulletin 92-10 (11/4/92, copy enclosed) states, under the section titled "Rental Equipment,' that:
-
- Purchases or rentals of tablecloths, tables, etc. is comparable to the purchase of preparation and serving items above and therefore cannot be purchased by the business under a Resale Exemption Certificate. The tax is applicable at the time of purchase or rental and must be paid to the vendor. These costs are passed on to the customer in the price of the meal.
- Purchases or rentals of tablecloths, tables, etc. is comparable to the purchase of preparation and serving items above and therefore cannot be purchased by the business under a Resale Exemption Certificate. The tax is applicable at the time of purchase or rental and must be paid to the vendor. These costs are passed on to the customer in the price of the meal.
The Taxpayer requests the waiver of interest assessed in the audit because it was unaware of the proper application of sales and use tax to its business. The enclosed copy of Title 23 VAC 10-210-2032(B) addresses the assessment of interest in audits and states that "[t]he application of interest to all audit deficiencies is mandatory and accrues as set forth in 23 VAC 10-210-2030 C.' While I am sympathetic with the Taxpayer, the assessment of audit interest is required by regulation and no basis has been presented to warrant waiver of the interest.
I note that the Taxpayer indicates that payment of the assessment could place a financial burden on its business operations. The department can allow the Taxpayer to make installment payments to reduce this burden. If the Taxpayer desires such a payment plan, or if it has any questions, please contact ***** at *****. To avoid the accrual of additional interest, payment of ***** may be sent to ***** in the Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880.
Rulings of the Tax Commissioner