Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments, Taxpayer fabricates ice sculptures for sale to caterers and similar businesses.
Topic
Collection of Delinquent Tax
Records/Returns/Payments
Date Issued
08-04-1999
August 4, 1999
Dear *********
This will reply to your letter in which you seek correction of a retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period May 1995 through October 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer fabricates ice sculptures for sale to caterers and similar businesses. As a result of the department's audit, the Taxpayer was assessed the tax on the sale of ice sculptures.
The Taxpayer takes exception to the tax assessed on sales of ice sculptures and maintains that such sculptures are purchased by the caterer for resale to its customers. The Taxpayer claims that the ice sculptures are provided for catered events only if specifically requested by the party giver and are not used by the caterer as a standard arrangement. The Taxpayer maintains that the ice sculptures are similar to food provided by a caterer, in that they are consumed during an event. The caterer makes a separate charge for each ice sculpture and applies the applicable sales tax. As such, the Taxpayer claims that the charge to the customer constitutes a retail sale and the purchase of the ice sculpture by the caterer qualifies as an exempt purchase for resale.
DETERMINATION
Sales to caterers and other similar businesses
Title 23 of the Virginia Administrative Code (VAC) 10-210-930 states that "[r]etail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable...." Sales price is defined in Code of Virginia § 58.1-602 as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . without any deduction therefore on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever." Section F of this same regulation provides that ". . . items purchased by a restaurant for its own use in preparing and serving meals. . . are taxable and may not be purchased under a Certificate of Exemption." The same is equally true of a catering business which purchases or leases these items for its own use in preparing and serving meals.
Based on the regulation, the caterer is required to pay the tax on the cost price of the ice sculpture and must apply the tax to the total charge to the customer. It has long been established that a hotel, restaurant or caterer is the taxable consumer of all items and supplies used in connection with providing a meal, except that the food itself and related disposable items may be purchased under the resale exemption. This is true regardless of the method of billing the customer. While the charge to the customer for the ice sculpture may be separately stated, this does not preclude the application of the tax since the ice sculpture is provided as a component of the catering service. Although the ice sculptures may be provided at the customer's request, the ice sculptures are still provided by the caterer as part of the caterer's service. This is consistent with Public Document (P.D.) 94-39, P.D. 98-31 and Virginia Tax Bulletin 92-10, the ice sculptures provided in conjunction with the provision of food are taxable to the caterer because such items are used and consumed in providing catering services.
Information on application of tax
The Taxpayer states that the department provides a dealer with the Sales and Use Tax Regulations to use as a guide, implying that the regulation is the definitive guide to use for application of sales tax. As a new dealer, you claim that the department did not inform you of all the information available to dealers for determining the proper application of the sales and use tax.
The department employs various methods to disseminate information concerning the sales and use tax and other taxes it administers. Under Code of Virginia § 58.1-204, the department is required to publish regulations and written rulings or other interpretations of Virginia law which are of interest to taxpayers and practitioners. In addition to the regulations, the department issues tax bulletins to clarify areas of concern and interest. The department also has several district offices located throughout the Commonwealth to assist taxpayers and provide necessary information.
Furthermore, while the regulation may not specifically address ice sculptures, the regulation clearly provides that items used by a caterer in connection with providing catering services are taxable.
Summary
Based on the foregoing, the assessment is correct as issued. The Taxpayer will shortly receive an updated bill with interest accrued to the date of protest. The bill should be paid within 30 days to avoid the accrual of additional interest. If you should have any questions, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/20347T
Rulings of the Tax Commissioner