Does a catering business have to collect Kansas sales tax, and how is the tax sourced when food is delivered across state lines?

Plain-English summary

A catering company — a limited liability company organized in a state other than Kansas — asked how Kansas retailers' sales tax applies to its business. The Department confirmed two things.

A caterer is a retailer. "[P]ursuant to K.A.R. 92-19-69, your company would be considered a retailer for purposes of the Kansas retailers' sales tax." The Department added that "[i]t is immaterial that your limited liability company is organized under the jurisdiction of a state other than Kansas." Under the quoted regulation, a caterer "shall collect sales tax on the total gross receipts received from the sale of food, meals and drinks," with tax imposed on the "total selling price of the transaction without any deduction or exclusion for labor or services expended, skill, time spent, overhead and other expenses." Any "service charge added to the price of food, meals or drinks" is part of that taxable selling price.

The tax follows where the food is delivered. The Department agreed "that your company should collect tax based on where the delivery of food and services takes place." So food prepared at a Kansas location and delivered within Kansas "would be considered a Kansas sale subject to Kansas retailers' sales tax," while food prepared in Kansas but "delivered to a location in Missouri" would be "a Missouri sale subject to Missouri sales tax." The Department cautioned that its letter "is not binding upon the State of Missouri" and urged the taxpayer to seek a Missouri ruling for that side of the business.

Bottom line: a caterer collects Kansas sales tax on the full charge for catered food, meals, and drinks — including service charges — for events delivered in Kansas, and looks to the destination state's tax for out-of-state deliveries.

What this means for you

A catering business is a retailer that must collect sales tax

Kansas treats a person "engaged in the business of catering" as a retailer under K.A.R. 92-19-69. That means charging and remitting sales tax on catered food, meals, and drinks unless a specific exemption applies.

Tax applies to the whole charge, not just the food

The tax base is the "total selling price," with no deduction for labor, skill, time, overhead, or profit — and "whether separately billed or segregated on the same bill." Breaking out labor or service line items does not shrink the taxable amount.

Service charges are taxable too

A "service charge added to the price of food, meals or drinks" is part of the selling price and is taxed, "even though such charges are made in lieu of tips" and are paid over to employees.

Sourcing follows delivery

Charge Kansas tax when the catered food and services are delivered in Kansas. When food is delivered into another state, that state's tax rules apply — here, a delivery into Missouri is a Missouri sale, and the caterer should confirm Missouri's treatment directly with the Missouri Department of Revenue.

Out-of-state organization does not change the answer

Being an LLC formed in another state does not exempt a caterer from Kansas retailer status when it caters in Kansas.

Common questions

Does a caterer charge Kansas sales tax on the full bill?
Yes. Tax applies to the total selling price of the food, meals, and drinks, with no deduction for labor, overhead, or profit.

Are separately stated service charges taxable?
Yes. A service charge added to the price of food, meals, or drinks is part of the taxable selling price, even if it substitutes for a tip and is paid to employees.

Which state's tax applies when I deliver out of state?
The tax follows delivery. Food delivered in Kansas is a Kansas sale; food delivered to Missouri is a Missouri sale subject to Missouri tax — not Kansas tax.

Does it matter that my company was formed in another state?
No. The Department said it is immaterial that the LLC is organized outside Kansas; it is still a Kansas retailer.

Citations and references

• K.A.R. 92-19-69 — defines a caterer as a retailer and requires collection of sales tax on the total gross receipts from food, meals, and drinks, including added service charges, with no deduction for labor, skill, time, overhead, or profit.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• The Department noted its ruling is "not binding upon the State of Missouri" and pointed to Missouri Regulation 12 CSR 10-3.003 for a Missouri ruling.
• Issued August 28, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-98

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 28, 1998

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated August 3, 1998. This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59.

I have reviewed facts as contained in your letter and pursuant to K.A.R. 92-19-69, your company would be considered a retailer for purposes of the Kansas retailers' sales tax. It is immaterial that your limited liability company is organized under the jurisdiction of a state other than Kansas. I would also agree with your conclusion that your company should collect tax based on where the delivery of food and services takes place. For instance, if food is prepared at your XXXXXXXX, Kansas location and then delivered to a location in Kansas, this sale would be considered a Kansas sale subject to Kansas retailers' sales tax. If the food were prepared at your XXXXXXXX, Kansas location and delivered to a location in Missouri, this sale would be considered a Missouri sale subject to Missouri sales tax.

Kansas Administrative Regulation 92-19-69 states:

Caterers. (a) Each person engaged in the business of catering is a retailer as defined in K.S.A. 1986 Supp. 79-3602(d). Each retailer shall collect sales tax on the total gross receipts received from the sale of food, meals and drinks, other than alcoholic liquor as defined in K.S.A. 41-102 as amended by L. 1987, Ch. 182, Sec. 1 and amendments, and cereal malt beverages as defined in K.S.A. 41-2701 as amended by L. 1987, Ch. 182, Sec. 97, and amendments, unless specifically exempt. Sales tax shall be imposed on the total selling price of the transaction without any
deduction or exclusion for labor or services expended, skill, time spent, overhead and other expenses incurred by the caterer in producing the tangible personal property or profit thereon, regardless of how any contract, invoice or other evidence of the transaction is stated or computed, and whether separately billed or segregated on the same bill.
(b) Each amount designated as a service charge added to the price of food, meals or drinks, shall be a part of the selling price of the food, meals or drinks, and shall be included in the total selling price subject to sales tax, even though such charges are made in lieu of tips and are paid over by the retailer in whole or in part to the retailer's employees.
(c) The gross receipts received by a person holding a temporary permit as defined in K.S.A. 41-2601 as amended by L. 1987, Ch. 182, Sec. 60, from each sale of alcoholic liquor as defined in K.S.A. 41-102 as amended by L. 1987, Ch. 182, Sec. 1 and amendments, and cereal malt beverages as defined in K.S.A. 41-2701 as amended by L. 1987, Ch. 182, Sec. 97 and amendments, upon which no Kansas excise tax has been paid, shall be subject to sales tax. (Authorized by K.S.A. 79-
3618, implementing K.S.A. 1986 Supp. 79-3602, K.S.A. 1986 Supp. 79-3606 as amended by L. 1987, Ch. 292, Sec. 32, as further amended by L. 1987, Ch. 64, Sec. 1; effective May 1, 1988.)

This letter is not binding upon the State of Missouri, therefore I am strongly urging you to seek written advice from the Director of Revenue, State of Missouri in regard to this matter. You can do this by requesting a letter ruling pursuant to Missouri Regulation, 12 CSR 10-3.003. The address of the Missouri Department of Revenue is PO Box 311, Jefferson City, MO, 65105-0311

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially effects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 09/04/1998 Date Modified: 10/11/2001

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