How should Virginia sales tax apply to food, beverages, and vending-machine sales in unstaffed workplace micro markets?

Plain-English summary

Virginia treated an unstaffed workplace “micro market” much like a convenience store. Qualifying staple groceries and cold prepared foods packaged for home consumption could receive the reduced food-tax rate, while hot coffee, hot food, open-container items, and other food for immediate consumption remained taxable at the general rate.

Because one micro market could sell both categories, its self-checkout kiosk needed to assign the correct rate to each item. A single rate for every product would not follow the ruling.

Vending-machine sales depended on the operator. A dealer in the business of placing vending machines followed 23 VAC 10-210-6041. A micro-market operator that was not in that business but used vending machines followed 23 VAC 10-210-6043.

Common questions

Did every item in a micro market receive the reduced food rate? No.

Could cold sandwiches and packaged salads qualify? Yes, when packaged for home consumption under the cited food rules.

How were hot coffee and hot meals taxed? At the general retail sales-tax rate described in the ruling.

Citations and references

• Va. Code §§ 58.1-611.1 and 58.1-614
• 23 VAC 10-210-6041 and 10-210-6043
• P.D. 05-78 (May 31, 2005)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-148

Original ruling text

July 31, 2018

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of the * (the “Taxpayer”). The Taxpayer is an industry association that requests a ruling regarding the application of the Virginia retail sales and use tax on sales made via a new market channel known as micro markets.

FACTS

Micro markets are self-checkout retail food establishments placed in a company’s building or break room. These establishments are unstaffed and designed to operate in “closed” locations for the convenience of a company’s employees, away from public traffic. A micro market is equipped with open rack displays, refrigerated coolers or freezers, and a self-serve coffee station. The micro market is also equipped with a self-service kiosk that handles the payment and checkout process.

In a micro market, the employees, as customers, choose food and beverage products and scan the UPC barcode for each product at the checkout kiosk. The employee then pays with a single payment using cash, credit card or stored value card via the kiosk. Because these establishments are self-service and unstaffed, they are equipped with a 24-hour security system that monitors the employees’ selections and checkout to ensure honesty during the purchase process. Although unstaffed, these establishments are serviced frequently to ensure that fresh food and beverage products are available to the employees.

The Taxpayer seeks clarity on how food and beverage products sold in micro markets should be taxed. The Taxpayer contends that the tax treatment of products sold in a micro market should not differ from the tax application to sales made in a convenience store establishment.

In addition, the Taxpayer raises the placement of vending machines in micro markets. The Taxpayer asserts that vending machines located in a micro market and operated by the operator of the micro market are subject to the provisions of Title 23 of the Virginia Administrative Code (VAC) 10-210-6043.

RULING

Micro Markets

Virginia Code § 58.1-611.1 established a reduced retail sales and use tax rate on food purchased for human consumption and provides that “food purchased for human consumption” as defined under the Food Stamp Act of 1977, 7 U.S.C. § 2012, means “any food or food product for home consumption except alcoholic beverages, tobacco, and hot foods or hot food products ready for immediate consumption.” This definition includes most staple grocery food items and cold prepared foods packaged for home consumption. Public Document (P.D.) 05-78 (5/31/05) explains that the reduced 2½% rate applies to all sales of food for home consumption by the following dealers:

[B]akeries, cafes, cafeterias, convenience stores, delicatessens, department stores, diners, doughnut and pastry shops, drug and sundry stores, farmer's markets, grocery stores, ice cream shops, lunch counters, mail order companies, supermarkets, sandwich shops, snack bars, specialty meat and produce stores, video stores, and weight reduction establishments.

As detailed in P.D. 05-78, a number of foods are eligible for the reduced rate under the federal food stamp definition, such as:

Snack foods

Beef jerky, candy, candy-coated and chocolate-coated products, confectionery, chewing gum, extruded snacks (including balls, curls, filled snacks, puffs, and twists), fabricated snacks (including food bars or squares, grain cakes, and shoestring potato snacks), fruit-flavored snacks (fruit roll-ups and like items), granola bars, mints, potato chips, popcorn products (including popped popcorn packaged for home consumption), and prepackaged gelatin and puddings.

Cold prepared foods

Cold sandwiches, cold salads, and salad bar foods packaged for home consumption. This includes prepackaged cold sandwiches and prepackaged salads in any size container.

Cold prepared foods packaged as one or more meals and marketed for home consumption. The food items are usually packaged individually in closed containers and bagged or boxed to go. This includes take-home cold dinners.

Cold fountain drinks, beverages, juice drinks in containers with seals, lids, or tops.

The public document goes on to explain that there are a number of items sold that would not be eligible for the reduced tax rate and, instead, would be taxed at the general retail sales and use tax rate. These items include, but are not limited to, the following:

Catered food and meals.

Hot foods and hot beverages (including hot meals).

Cold food and cold beverages served in open containers or on plates, platters and trays for immediate consumption.

Eligible food packaged with ineligible food, nonfood items, or alcoholic beverages and sold together for a single price.

Food marketed or advertised for heating in the store whether or not hot at the point of sale.

Food and beverages kept hot to make them palatable and suitable for immediate consumption on or off the premises.

Cold sandwiches, cold salads, and cold beverages sold in combination with hot foods for a single price.

Micro markets appear to operate as retail food establishments similar to convenience stores. While it is clear that the micro markets sell food and beverage products for home consumption, it is noted that these retail food establishments may also sell food and beverage products for immediate consumption, e.g ., hot coffee. Therefore, the operator should apply the proper tax rate to the items sold in the micro market and ensure that point of sale devices (kiosks) are equipped to adjust the tax rate based on the food and beverage products sold, pursuant to Virginia Code § 58.1-611.1 and P.D. 05-78.

Vending Machine Dealers

Virginia Code § 58.1-614 sets forth the requirements for the reporting and remittance of the retail sales and use tax regarding tangible personal property sold through vending machines. Title 23 VAC 10-210-6041 is the regulation that addresses dealers engaged in the business of placing vending machines. A dealer engaged in the business of placing vending machines in a micro market that such dealer operates, must report and pay the tax on sales made through the vending machines in accordance with the provisions in Title 23 VAC 10-210-6041.

Vending Machines - Other Dealers

Dealers who are not engaged in the business of placing vending machines, but who sell tangible personal property through vending machines are required to report and pay the sales tax in accordance with the provisions in Title 23 VAC 10-210-6043. Therefore, when the operator of a micro market uses vending machines at its micro market, such operator must report and pay the tax on sales made through the vending machines in accordance with this regulation.

I trust that the foregoing guidance responds to your inquiry. This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations, and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions 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,

Craig M. Burns

Tax Commissioner

AR/1662.L