What charges must a caterer include in the Kansas sales tax base?

Plain-English summary

A caterer asked which of its charges are subject to Kansas sales tax. The Department ruled that the tax applies to the entire selling price of the catering job.

Tax the total selling price. "Pursuant to K.A.R. 92-19-69, your company is required to impose tax on the total selling price of your service. The total selling price includes, but is not limited to charges for food, beverage, service charge, hall rental, flowers and other incidentals." So the caterer cannot tax only the food and treat the rest as nontaxable extras.

A caterer is a retailer and gets no deductions for labor or overhead. The Department quoted the regulation: a caterer "is a retailer as defined in K.S.A. 1986 Supp. 79-3602(d)" and "shall collect sales tax on the total gross receipts received from the sale of food, meals and drinks." The tax is "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 . . . 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."

Service charges (even in lieu of tips) are taxable. "Each amount designated as a service charge added to the price of food, meals or drinks[] shall be a part of the selling price . . . 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."

Alcohol under a temporary permit. The regulation also provides that gross receipts from alcoholic liquor and cereal malt beverages sold under a temporary permit, on which no Kansas excise tax has been paid, are subject to sales tax.

Bottom line: a caterer taxes the whole bill - food, drinks, service charges, hall rental, flowers, and incidentals - with no carve-out for labor, overhead, or profit, and regardless of how the invoice is itemized.

What this means for you

Caterers

Charge Kansas sales tax on the total selling price of the job. That includes food and beverages, service charges, hall rental, flowers, and other incidentals. You cannot separate out and exempt labor, overhead, skill, time, or profit, even if you itemize them on the invoice.

Service charges and gratuity-style fees

A mandatory service charge added to the price of food or drinks is part of the taxable selling price - even when it is made in lieu of tips and paid over to employees.

Alcohol sold under a temporary permit

Receipts from alcoholic liquor and cereal malt beverages sold under a temporary permit, where no Kansas excise tax has been paid, are subject to sales tax.

Common questions

Q: Does a caterer charge sales tax on hall rental and service charges, or just the food?
A: On the total selling price. The Department ruled the tax base includes food, beverage, service charge, hall rental, flowers, and other incidentals.

Q: Can a caterer deduct labor or overhead from the taxable amount?
A: No. K.A.R. 92-19-69 bars any deduction for labor, skill, time, overhead, other expenses, or profit, whether or not separately billed.

Q: Is a mandatory service charge taxable even if it goes to staff?
A: Yes. A service charge added to the price of food or drinks is part of the taxable selling price, even when made in lieu of tips and paid over to employees.

Citations and references

• K.A.R. 92-19-69 - the Kansas caterers regulation. It makes a caterer a retailer and requires sales tax on the total selling price of food, meals, and drinks, with no deduction for labor, skill, time, overhead, other expenses, or profit (whether or not separately billed); it also taxes mandatory service charges (even in lieu of tips) and receipts from alcohol sold under a temporary permit on which no Kansas excise tax was paid.
• K.S.A. 79-3602(d) - the definition of "retailer" the regulation relies on to classify a caterer as a retailer required to collect the tax.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2000-052

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 13, 2000

XXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXX

Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated August 17, 2000. This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59.

I have reviewed the facts as contained in your letter. Pursuant to K.A.R. 92-19-69, your company is required to impose tax on the total selling price of your service. The total selling price includes, but is not limited to charges for food, beverage, service charge, hall rental, flowers and other incidentals.

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 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: 10/16/2000 Date Modified: 10/11/2001

Table 1

Table 2