Who collected Virginia sales tax when a catering platform took orders, arranged delivery, marked up meals, and received customer payments?

Subject

Catering platform was the retail seller and owed tax on its full customer charge

Plain-English summary

Virginia ruled that the catering platform, not the underlying caterer, was the retail seller responsible for collecting and remitting sales tax on the full customer charge. The platform advertised menus, accepted and routed orders, arranged delivery, approved billing accounts, collected customer payments, and added markup and service fees.

The customer bought from the platform. Sales tax therefore applied to the total price charged to the customer, including the platform's markup and service fees, rather than only the discounted all-inclusive amount the platform paid the food provider.

The caterer and other food providers were suppliers making sales for resale to the platform. Their sales could be exempt if they accepted a completed Form ST-10 from the platform.

Virginia limited the conclusion to the submitted agreement. Caterers and restaurants making ordinary direct retail sales still had to collect and remit tax under the Department's usual policy.

What this means for you

• The entity controlling the retail transaction can be the tax-collecting dealer even when another business prepares the food.
• Markups and service fees included in the customer price entered the taxable sales price.
• Upstream food providers needed a completed resale certificate.
• Contract language assigning tax duty did not override who actually made the retail sale.

Common questions

Who sold to the end customer?

The platform vendor, based on its ordering, delivery, payment, and pricing functions.

What amount was taxable?

The full customer charge, including markup and service fees.

How did the caterer document the resale sale?

By obtaining a completed Form ST-10 from the platform.

Citations and references

• Va. Code §§ 58.1-602, 58.1-603, 58.1-623, and 58.1-625.
• 23 VAC 10-210-280.
• Virginia Public Documents 98-2 and 04-223.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-9

Original ruling text

January 19, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter in which you seek a ruling on behalf of * (the "Taxpayer") regarding the application of the retail sales and use tax to a transaction for the provision of catered food.

FACTS

The Taxpayer, a caterer, is contemplating entering into an agreement with a catering and management organization (the "Vendor"). The Vendor partners with various restaurants and caterers ("food provider") to provide catered food and meals to businesses and organizations. The Vendor enters into an agreement with each food provider to advertise menu items and take orders from customers. Once an order is received, the Vendor routes the order to the food provider and arranges for the delivery of such order. The vendor collects all payments from the customers and handles the credit approval process for those customers seeking a billing account.

The Vendor agrees to a prearranged price with the food provider that discounts the price of the food. The Vendor then adds a mark-up and service fees, and the total is the charge to the customer. Under the terms of the agreement, the discounted price paid by the Vendor to the food provider is all inclusive and includes the cost of the food, delivery, sales tax and tip. This is also advertised to the customers that the price they pay is all inclusive. The agreement further provides that the food provider is responsible remitting all sales and local taxes.

The Taxpayer takes exception to the Vendor's method of tax remittance because it would require that (1) the tax reporting responsibility be placed upon the food provider and (2) the tax would be erroneously reported on the discounted price of the food. The Taxpayer believes the tax should be remitted based on the retail sales price charged to the customer, and the tax collection and remittance responsibility lies with the Vendor. The Taxpayer seeks confirmation of its position before it enters into the agreement with the Vendor.

RULING

Virginia Code § 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 . . . ." Virginia Code § 58.1-625 sets out the collection requirements for dealers and states, "the dealer shall separately state the amount of the tax and add such tax to the sales price of charge." Further, Va. Code § 58.1-602 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. . . ."

The Taxpayer's position is correct. The Vendor in this instance is actively engaged in the business of selling at retail because, the customers, as the end users, are not purchasing from the food providers, but from the Vendor. This is evidenced by the fact that the Vendor solicits orders from customers, takes and receives the orders, arranges to have the orders fulfilled and delivered, and takes payment form its customers. Therefore, in accordance with the cited authorities the Vendor is responsible for collecting and remitting the sales tax to the Department based on the total sales price (including the mark-up and service fees) of the catered food and meals sold to the customers.

In regard to the Taxpayer's responsibility, the Taxpayer and the other food providers are considered suppliers to the Vendor, and the sales of catered food and meals to the Vendor are sales for resale. These sales are exempt in accordance with the resale exemption found in they definition of "retail sale" in Va. Code § 58.1-602, which means "a sale to any person for any purpose other than for resale in the form of that tangible personal property . . . ." The Taxpayer and the other food providers may make such sales exempt of the tax provided they receive from the Vendor a completed resale exemption certificate (Form ST-10). See Va. Code § 58.1-623 and Title 23 of the Virginia Administrative Code 10-210-280 for guidance regarding the use of exemption certificates.

This ruling is consistent with a prior ruling of the Tax Commissioner in Public Document (P.D.) 98-2 (1/8/98). The fact pattern in this case is similar to the facts in that case, although not identical. In that case, the taxpayer contracted with restaurants to advertise and deliver the restaurants' menu items to customers. The Tax Commissioner ruled that the taxable transaction occurred between the taxpayer and its customers. Accordingly, the taxpayer was held responsible for collecting and remitting the sale tax on the total sales price charged. The same reasoning applies here. The transaction that is subject to the tax is the retail sale between the Vendor and the customers.

Further, this ruling does not conflict with the Department's established policy regarding restaurants and catering establishments. Generally, such establishments must collect and remit the sales tax on the total sales price of catered food, meals and services sold to their customers. However, the transaction in this case differs because the Taxpayer and other food providers are not the persons engaged in making retail sales. Aside from the a transaction such as the one at issue in this ruling, the Taxpayer and other restaurants and caterers must collect and remit the tax in accordance with the Department's established policy as set out in P.D. 04-223 (12/30/04).

This response is based on the facts provided and the agreement submitted for review. Any change in the facts or the agreement or the introduction of new facts may lead to a different result.

The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3649762523.J