When a night club collects all the money for a meal-and-show package sold with a separate restaurant, who reports and remits the sales tax?

Plain-English summary

A night club sells a package with a nearby restaurant: one ticket buys dinner at the restaurant plus a show and dessert at the club. The club collects all the money from the customer, then pays the restaurant its share. Historically the restaurant remitted sales tax on the dinner and the club remitted tax on the dessert. The club asked whether that split-reporting is correct given that it collects everything.

The Department said the right answer turns on the relationship between the two businesses, which the facts didn't pin down:

• Collecting agent. If the club collects only as the restaurant's agent, the agent doesn't have to report to the Department the taxes it collects on the principal's behalf — the restaurant reports those. But the agent remains jointly and severally liable to the Department for any trust-fund taxes it converts to its own use.
• Joint venture. If the club and restaurant operate as a joint venture, the Department treats both as retailers, each jointly and severally liable for the sales tax on the entire package. They should open a new sales-tax account and file under the new account name — especially appropriate if they intend to keep offering the package long-term.

On these facts — and assuming the arrangement is temporary — the Department found it acceptable that each retailer reports sales and tax for only its own portion of the meal. But it expressly did not determine that the club is merely the restaurant's collecting agent. And it underscored that even as a pure collecting agent, the club is liable for any trust funds it collects and diverts (whether on its own dessert sales or the restaurant's meals), while the restaurant, as principal, is responsible for its agent's failure to collect or remit the restaurant tax.

What this means for you

Businesses selling bundled packages together

When two businesses combine offerings into one ticket and one collects all the money, how you report tax depends on whether you're an agent collecting for the other or a joint venture. As agents, each can report its own slice. As a joint venture, both are on the hook for the whole package and you need a shared sales-tax account.

Ongoing arrangements lean toward joint venture

The Department signaled that a long-term package looks like a joint venture (both retailers jointly liable), while a temporary one can be handled with each side reporting its own portion. The more permanent and integrated the offering, the more you should plan for joint-venture treatment and a combined account.

Collected tax is trust-fund money

Whatever the structure, sales tax you collect is trust-fund money. If you collect it and divert it to your own use, you're personally on the hook — and a principal is responsible for its collecting agent's failures. Keep collected tax segregated and remitted.

Common questions

Q: My club collects all the money for a package with a restaurant. Who remits the sales tax?
A: If you're the restaurant's collecting agent, each business can report and remit tax on its own portion. If you're a joint venture, both are retailers jointly liable for tax on the whole package and should file under a new combined account.

Q: We've always split it — restaurant pays tax on dinner, we pay on dessert. Is that OK?
A: For a temporary arrangement, the Department found that acceptable. But it didn't bless it as the only answer, and a long-term package may be a joint venture requiring joint reporting.

Q: If I'm just the collecting agent, am I off the hook?
A: Not entirely. You remain liable for any trust-fund tax you collect and divert to your own use, and the restaurant (as principal) is responsible if its agent fails to collect or remit.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance, not binding on the Department.

Citations and references

Statutes:
- § 24-35-103.5, C.R.S. — general information letters are not binding on the Department

(The letter applies general agency, joint-venture, and trust-fund tax principles rather than citing specific imposition statutes.)

Related Colorado letters:
- [[gil-07-013-rental-of-various-items]] — another itemized, structure-dependent CO determination
- [[gil-08-020-taxability-of-certain-goods-and-services]] — bundled charges and how arrangement structure drives the tax

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-07-014.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2007-14

XXXXXXXXXXXXX.
XXXXXXXXXXXXX
XXXXXXXXXXXXX
December 4, 2007
Re: club meal package
Dear XXXXXXXXXX,
This letter is in response to your letter to the Colorado Department of Revenue, dated June 12, 2007, re: tax
reporting for night club / restaurant meal package. We apologize for the time it has taken to respond to your
inquiry.
Issue.
Does the nigh club responsible for reporting and remitting sales tax of the restaurant?
Background
Your firm represents a night club that offers a special package with a near-by restaurant. A purchaser of the
ticket is entitled to a dinner at the restaurant and tickets to a show and dessert at the night club. The night club
collects all of the money from the customer and then pays the restaurant for its portion. In the past, the
restaurant was remitting the sales tax on the dinner, and the night club was remitting the sales tax on the
dessert. You ask whether this procedure is correct in light of the fact that the night club was collecting all of the
money from the customer.
Discussion
With certain assumptions, the Department will treat the night club as a collecting agent for the restaurant.
It is not clear from the facts you provided whether the night club is acting as the collecting agent for the
restaurant; or whether the restaurant and night club are acting as a joint venture to provide the meal package.
If a person collecting tax acts only as the agent for its principal, then the agent does not have the responsibility
of reporting to the Department taxes collected on behalf of the principal. The agent, however, remains jointly
and severally liable to the department for any trust fund taxes the agent converts to its own use. In the case of
a joint venture, the Department will treat both entities as retailers, each jointly and severally liable for the sales
tax for the entire package. A new sales tax account should be created and a return filed under the new account
name. This would be particularly appropriate if the two retailers intend to continue offering the entertainment
package on a long term basis.
Under the circumstances presented in your letter, and assuming that this arrangement is temporary in duration,
it is acceptable to the department that, for reporting purposes, each retailer report sales and taxes for only that

portion of the meal that it provides. However, the department does not by this letter determine that the night
club is merely the collecting agent of the restaurant.
To be clear, even if the night club is only the collecting agent of the restaurant, the night club remains liable for
any trust funds it collects, whether for sale of the meals it provides or for sales of meals provided by the
restaurant, but converts to its own use. The restaurant, as the principal, would also be responsible for any
failure of its collecting agent, the night club, to collect and/or remit sales tax to the restaurant for the restaurant
meals.
I apologize for any confusion resulting from past communications with the department. This was an unusual
question and one which the call center, which typically handles more general questions, does not often deal.
Finally, the Department makes a good faith effort to provide accurate and complete answers to questions posed
to it by taxpayers. However, the information and answers provided here are not binding on the Colorado
Department of Revenue, nor do they replace, alter, or supersede Colorado law and regulations. The Executive
Director, who by statute is the only person having authority to bind the Department, has not formally reviewed
and/or approved this response.
Respectfully,

Office of Tax Policy
Colorado Department of Revenue