Does an event venue that rents space, tables, and chairs (but no overnight lodging) owe Virginia sales tax on its bookings, and can an auditor extend the audit period past the signed waiver?

Plain-English summary

A venue that rents out its facility and furniture for weddings, corporate retreats, birthday parties, and alcohol tastings was audited and assessed sales tax on untaxed sales plus untaxed purchases of fixed assets and general expenses, along with compliance and amnesty penalties. The taxpayer hadn't given the auditor the tax returns, bank statements, and signed sales contracts needed to fully verify its numbers, so the assessment leaned on an estimate. The venue raised several objections on appeal, and the Department addressed each one.

On a threshold issue, the Department confirmed the assessment was issued to the correct entity based on the information the auditor had. More significantly, it agreed with the venue on the audit period: the taxpayer's signed extension waiver only covered October 2013 through September 2019, but the auditor's assessment reached into 2020 and 2021 without any documented agreement extending the audit that far -- so the Department cut the audit period back to what the signed waiver actually covered.

On the substance of what's taxable, the ruling walks through Virginia's accommodations tax and rental tax side by side. Charging for event space itself is only taxable as an "accommodations" sale if it includes an overnight stay -- a rule confirmed by 2022 legislation clarifying that conference/meeting/event space without overnight sleeping rooms was never meant to be taxed this way, even retroactively. It was unclear from the record whether this particular venue offered overnight stays (its website mentioned on-site cabins), and since a Department assessment is presumed correct until the taxpayer proves otherwise, that question wasn't resolved outright. But separately, the venue clearly rented out tangible personal property along with the space -- tables, chairs, linens, tableware, and optional add-ons -- and that is taxable regardless of the overnight-stay question. Critically, when a single lump-sum price bundles a taxable item with a nontaxable one, the whole bundled charge becomes taxable -- so unless the venue's contracts separately priced the (potentially nontaxable) space from the (taxable) furniture rentals, the combined charge was fair game for the audit.

On the estimate itself, the Department acknowledged the venue's records were incomplete, which is exactly why the law lets the Department reconstruct a taxpayer's liability from the best information available when adequate records aren't kept -- but since the venue said it would still provide more documentation, the Department sent the audit back to be revised once that additional material came in. Finally, on penalties: this was the venue's first audit, so ordinarily no penalty applies at all -- except when the audit shows sales tax was actually collected from customers but never remitted, which does still carry a penalty even on a first audit. Here, though, the auditor had calculated that "collected but not remitted" penalty from an estimate of sales, not from records actually proving tax was collected -- and an estimate alone doesn't prove collection occurred, so the Department waived that penalty. The separate amnesty penalty would still be waived too, if the revised bill is paid within 30 days.

What this means for you

Event venues, wedding venues, and similar space-rental businesses

Whether your venue owes accommodations tax turns on whether you offer overnight stays -- pure meeting/event/conference space without sleeping rooms isn't "accommodations" for sales tax purposes, confirmed by a 2022 law that applies even to earlier years. But don't stop there: if you also rent tables, chairs, linens, or similar tangible items along with the space, that rental income is taxable regardless, and bundling it into one lump-sum price with your (possibly nontaxable) space charge will pull the whole thing into the tax base.

Any business facing an audit whose signed waiver period got extended without a new agreement

If an auditor's assessment reaches beyond the specific dates on your signed audit-period waiver, and there's no documented agreement extending it further, ask for the audit period to be limited to what you actually agreed to -- this ruling (following a 2021 precedent) confirms that's the rule.

First-time audit targets facing a "tax collected but not remitted" penalty

This penalty survives the general first-audit leniency, but it requires actual proof that you collected tax from customers and kept it -- an auditor's estimate of what your sales likely were isn't, by itself, evidence that collection actually happened. If your penalty was computed off an estimate rather than documented collections, that's a real basis for a waiver request.

Common questions

Q: Is renting out event space subject to Virginia sales tax?
A: Only if it includes an overnight stay ("accommodations" for a "transient"). Pure meeting, conference, or event space without overnight sleeping rooms is not taxable as accommodations -- a 2022 law change confirmed this was always the rule, even retroactively.

Q: What about the tables, chairs, and other items I rent along with the space?
A: Those are taxable as rentals of tangible personal property, regardless of whether the space itself is taxable.

Q: What happens if I charge one lump-sum price covering both the space and the furniture rentals?
A: The whole combined charge becomes taxable. Separately stating a nontaxable space charge from a taxable rental charge is what keeps the nontaxable portion out of the tax base.

Q: Can an auditor extend my audit past the dates on my signed waiver?
A: Not without a documented agreement between you and the auditor to extend it further -- absent that, the audit period is limited to what the waiver actually covers.

Q: Does a first-audit penalty waiver cover tax I collected from customers but didn't remit?
A: No -- that specific penalty still applies even on a first audit, but only if there's actual proof the tax was collected. An estimate of sales, without documentation proving collection, isn't enough to support that penalty.

Citations and references

• Va. Code § 58.1-603(4); § 58.1-602 (accommodations tax and definitions)
• 2022 Va. Acts ch. 154 / Senate Bill 432 (clarifying "accommodations" excludes event space without overnight lodging)
• Va. Code § 58.1-603; § 58.1-602 (tax on rental of tangible personal property; gross proceeds)
• Va. Code § 58.1-618 (best information available)
• Va. Code § 58.1-633; 23 VAC 10-210-470 (recordkeeping)
• Va. Code § 58.1-635; 23 VAC 10-210-2032 (mandatory penalty; first-audit exception)
• Va. Code § 58.1-205 (assessment presumed correct)
• P.D. 21-141 (11/9/2021) (audit period limited to waiver)
• P.D. 87-69 (2/27/1987); P.D. 89-257 (9/25/1989) (overnight-stay requirement)
• P.D. 94-142 (4/29/1994); P.D. 95-223 (8/29/1995); P.D. 09-2 (2/4/2009) (lump-sum bundled charges taxable)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-73

Original ruling text

June 23, 2023

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessment issued for the period October 2013 through March 2021. I apologize for the delay in responding to your request.

FACTS

The Taxpayer operates a venue that rents its facility and tangible personal property to its customers for events, such as weddings, corporate retreats, birthday parties, and alcohol tastings. As a result of an audit by the Department, the Taxpayer was issued an assessment for tax and interest due on untaxed sales and untaxed fixed asset and general expense purchases. The assessment also includes compliance and amnesty penalties. During the audit, the auditor requested to review tax returns, bank statements, and executed sales contracts. The Taxpayer did not provide the necessary documentation for the auditor to accurately determine its tax liability.

In its appeal, the Taxpayer alleges various issues concerning the assessment. First, the Taxpayer asserts that the assessment was not issued to the proper entity. The Taxpayer also states the audit period was improperly extended beyond the six-year audit period indicated on the signed waiver. Next, relying on Virginia Code § 58.1-603 4, the Taxpayer contends that its sales are not subject to tax because it does not provide overnight rentals. Alternatively, the Taxpayer claims that, if the Department determines that its sale are taxable, it believes the estimated assessment is overstated and the penalties were improperly assessed on tax collected but not remitted because it did not collect tax on its sales. The Taxpayer states that it is still working to provide documentation to the auditor.

DETERMINATION

Assessment Issuance

The Taxpayer claims that the assessment was erroneously issued to *, instead of ***. After a review of the information before me, I find that the assessment was issued based on the information made available to the auditor during the performance of the audit and is correct in this regard.

Audit Period

The Taxpayer notes that the Extension of Time Limitation Agreement indicates a six-year audit period from October 2013 through September 2019. The Taxpayer states that the audit period should be limited to the period indicated on the waiver.

In the instant case, the auditor brought the audit forward to include 2020 and 2021. However, the audit report does not include an agreement between the Taxpayer and the Department regarding an extension of the audit period to include periods after September 2019. Absent documentation as evidence that the Taxpayer and auditor mutually agreed to bring the audit period current, the audit must be limited to only include the six-year period agreed upon in the waiver. See Public Document (P.D.) 21-141 (11/9/2021).

Accommodations

Virginia Code § 58.1-603 4 provides that the sales tax applies to “gross proceeds derived from the sale or charges for accommodations furnished to transients as set out in the definition of ‘retail sale’ in Virginia Code § 58.1-602.” The Department has interpreted the definitions of “retail sale,” “accommodations,” and “transient” found in Virginia Code § 58.1-602 to require an overnight stay for tax to apply to the rental of venue space without the transfer of tangible personal property. See Public Document (P.D.) 87-69 (2/27/1987) and P.D. 89-257 (9/25/1989).

Similarly, the 2022 Virginia General Assembly passed legislation that clarified the definition of “accommodations” in Virginia Code § 58.1-602. Senate Bill 432 (2022 Acts of Assembly, Chapter 154) provides that the term accommodations “does not include rooms or space offered by a person in the business of providing conference rooms, meeting space, or event space if the person does not also offer rooms available for overnight sleeping.” The legislation further provides that nothing in the definitions of “retail sale” and “sale at retail” require, or have required, in any taxable year prior to the effective date of the law change, the collection of any tax for the offering of rooms or space by a person in the business of providing conference rooms, meeting space, or event space if that person does not also offer rooms available for overnight sleeping.

Based on the information available, it is unclear whether the Taxpayer provides overnight accommodations. The Taxpayer’s website indicates that it has cabins on its property and it has not presented any evidence to show that it did not provide overnight accommodations during the audit period. Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed to be prima facie correct. The burden is on the taxpayer to prove the assessment is erroneous or incorrect.

Taxable Sales

Even if the Taxpayer does not offer overnight accommodations, the available evidence indicates that the Taxpayer offers tangible personal property, such as tables, chairs, linens, tableware, and other items, available for rent in addition to the event space. The Taxpayer also offers optional “add-ons” that the guests can rent for an additional fee during an event. Virginia Code § 58.1-603 imposes the retail sales tax on the sale or rental of tangible personal property in Virginia. The tax is imposed on the gross proceeds derived from a lease or rental of tangible personal property. “Gross Proceeds” includes the total amount charged for tangible personal property. See Virginia Code § 58.1-602.

The Department’s policy has been that when a dealer charges a lump sum amount for both taxable and nontaxable items in a transaction, the tax is applied to the entire transaction. See P.D. 94-142 (4/29/1994), P.D. 95-223 (8/29/1995), and P.D. 09-2 (2/4/2009). Conversely, the Department has ruled that fees charged for the use of real property, for which an overnight stay is not provided, are not taxable provided that no tangible personal property is included in the total amount charged. P.D. 87-69 and P.D. 89-257.

Estimated Assessment

Virginia Code § 58.1-633 provides that every dealer required to make a return and collect sales tax “shall keep and preserve suitable records of the sales, leases, or purchase taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due here under, and such other pertinent information as may be required by the Tax Commissioner.” The record keeping requirements are set out in Title 23 Virginia Administrative Code (VAC) 10-210-470. When a dealer fails to maintain adequate records, the Department is authorized by Virginia Code § 58-1-618 to use the best information available to reconstruct a dealer's sales and purchases to determine whether a tax liability exists.

The Taxpayer claims the estimated tax liability assessed in the audit is overstated. However, it has not provided the necessary documentation to accurately determine its liability. In its appeal, the Taxpayer states it will provide additional documentation to the auditor for consideration. Accordingly, the audit will be returned to the audit staff in order to address the Taxpayer’s concerns related to the estimation of the audit assessment and other documentation issues mentioned in its appeal.

Penalties

Virginia Code § 58.1-635 mandates the application of penalty to tax deficiencies. Title 23 VAC 10-210-2032 generally provides that a penalty will not be assessed in first generation audits. However, the regulation sets out an exception to this rule that when an audit by the Department discloses that the sales tax has been collected but not remitted, the penalty will apply.

In this first audit of the Taxpayer, the auditor's computation of the compliance penalty for tax collected but not remitted was based on an estimation of the Taxpayer's sales rather than actual sales reflecting taxes collected but not remitted. An estimate, while authorized to determine a tax liability, does not provide a basis of proof that the Taxpayer actually collected the sales tax and failed to remit such tax to the Department. Accordingly, I find cause for waiver of the assessed compliance penalty. In addition, in accordance with the 2017 Amnesty Guidelines, the amnesty penalty will be abated if the outstanding assessment, after revision adjustments, is paid within 30 days from the date of the bill.

CONCLUSION

While you request a conference in your letter, your request is declined because the Department’s policy is well established and there is additional documentation that must be reviewed by the audit staff.

The audit will be adjusted in accordance with this determination. The Taxpayer must provide all requested records and documentation to the audit staff within 60 days from the date of contact with the auditor. Once the review is completed by the auditor, additional revisions to the audit and the audit assessment will be made if warranted and an updated bill will be issued.

The Code of Virginia sections, regulations, and public documents cited, along with other reference documents, are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions about this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3902.G

Related Documents

87-69

89-257

94-142

95-223

09-2

21-141