As a caterer that bills a hotel directly for banquet meals, must I keep collecting sales tax on those catering charges even after the hotel gives me an exemption certificate?

Plain-English summary

The Missouri Department of Revenue ruled that a restaurant that also caters to a hotel's banquet business must keep collecting and remitting sales tax on its catering charges to the hotel, even after the hotel's new owners asked it to stop.

Applicant is a restaurant and tenant of a hotel that also provides catering services to the hotel: the hotel contracts with banquet groups, and Applicant serves the meals and drinks to the banquet guests. Applicant bills the hotel directly (not the guests) and had been paying sales tax on those catering charges. After the hotel changed ownership, the new owners gave Applicant a completed Missouri Exemption Certificate (Form 149) and asked Applicant to stop collecting sales tax, on the theory that the hotel would instead collect the tax from the banquet guests in a later transaction.

The Department said no. Section 144.020.6, RSMo, imposes a 4% tax on sales or charges for rooms, meals, and drinks furnished at hotels, restaurants, and similar establishments, and Applicant's catering charges for meals and drinks fall squarely within that provision. Separately, Section 144.018.3, RSMo, requires the original seller of such rooms, meals, or drinks to remit the tax on that sale; a subsequent resale of the same rooms, meals, or drinks escapes a second layer of tax only if the initial sale was an arm's-length transaction for fair market value with an unaffiliated entity. Here, Applicant and the hotel contracted for catering services in an arm's-length transaction for fair market value, so Applicant -- as the initial seller -- must remit tax on that sale, and it's the hotel's later resale of the food to the banquet guests that is correspondingly not taxed again. The exemption certificate the new owners provided doesn't change that: it's the hotel's resale to guests that avoids double taxation, not Applicant's original catering sale to the hotel.

What this means for you

Caterers who bill a venue or hotel directly

If you provide catering services to a hotel, banquet hall, or similar venue and bill that venue directly (rather than the end guests), you are the original seller of the meals and drinks under Section 144.020.6, RSMo, and you remain responsible for collecting and remitting sales tax on those charges. An exemption certificate from the venue does not relieve you of that duty -- it doesn't change who the "original seller" is.

Hotels and venues that resell catered food to guests

Section 144.018.3, RSMo, protects against double taxation: if your caterer's sale to you was an arm's-length transaction at fair market value, your later resale of that same food and drink to banquet guests is not separately taxed. But that protection runs to your resale, not to the caterer's original sale to you -- so asking your caterer to stop charging tax (planning to collect it yourself downstream) gets the sequence backwards.

Accountants and hospitality tax compliance staff

When a change in ownership or a new exemption certificate raises questions about who should be collecting tax in a multi-party catering arrangement, check whether the transaction at issue is the "initial sale" or a "subsequent sale" under Section 144.018.3, RSMo. Tax attaches once, at the initial arm's-length sale; only later resales in the chain can qualify for the anti-double-taxation exemption.

Common questions

Q: Does the hotel's Exemption Certificate (Form 149) let the caterer stop charging sales tax?
A: No. The certificate doesn't change who the original seller is. Applicant, as the party that sold the catering services to the hotel in an arm's-length transaction for fair market value, remains the original seller responsible for remitting tax under Section 144.018.3, RSMo.

Q: Why doesn't this arrangement count as double taxation if the caterer keeps charging tax?
A: It isn't double taxation at all under this ruling -- the tax attaches once, at Applicant's sale to the hotel. Because that initial sale was arm's-length and at fair market value, the hotel's later resale of the same food and drinks to the banquet guests is exempt from a second layer of tax. Only one sale in the chain is taxed.

Q: Does it matter that the caterer bills the hotel and not the banquet guests directly?
A: Yes -- that's exactly what makes Applicant's sale to the hotel the "initial sale" under Section 144.018.3, RSMo. Because Applicant bills the hotel, Applicant is the original seller responsible for the tax, and the hotel's subsequent service to guests is the "subsequent sale" that is not separately taxed.

Q: Would the answer change if the caterer and hotel were affiliated rather than at arm's length?
A: The ruling's exemption from double taxation applies only where the initial sale was an arm's-length transaction for fair market value with an unaffiliated entity. Applicant and the hotel met that standard here, but the ruling suggests the analysis could differ for affiliated parties or non-fair-market-value pricing.

Citations and references

Statutes:

• Section 144.020.6, RSMo (4% tax on rooms, meals, and drinks furnished at hotels, motels, restaurants, and similar establishments)
• Section 144.018.3, RSMo (original seller of rooms/meals/drinks must remit tax; subsequent arm's-length resale not separately taxed)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8267

Original ruling text

Dear Applicant,

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated July 28, 2023.

The facts as presented in your letter ruling request and subsequent phone call are summarized as follows:

Applicant is a restaurant and tenant of a hotel. In addition to its restaurant services, Applicant also provides catering services to the hotel. The hotel contracts with banquet groups and Applicant provides the meal and beverage service to the banquet guests. Applicant bills the hotel directly, not the banquet guests, and pays the sales tax to the State.

After the hotel changed ownership, the new owners presented Applicant with a completed Exemption Certificate Form 149 and requested that Applicant stop collecting sales tax on their sales of catering services to the Hotel, because the Hotel would collect the tax owed from the customer in a subsequent transaction.

ISSUE :

Is Applicant responsible for collecting and remitting applicable sales and use tax on their sales of catering services to the hotel?

RESPONSE :

Yes. Applicant is responsible for collecting and remitting applicable sales and use tax on their sales of catering services to the hotel.

Section 144.020.6 RSMo, provides:

(6)  A tax equivalent to four percent on the amount of sales or charges for all rooms, meals and drinks furnished at any hotel, motel, tavern, inn, restaurant, eating house, drugstore, dining car, tourist cabin, tourist camp or other place in which rooms, meals or drinks are regularly served to the public.  The tax imposed under this subdivision shall not apply to any automatic mandatory gratuity for a large group imposed by a restaurant when such gratuity is reported as employee tip income and the restaurant withholds income tax under section  143.191  on such gratuity;

Applicant's catering services and charges associated with furnishing meals are taxable sales. Therefore, they are subject to tax.

Additionally, Section 144.018.3 RSMo, provides:

For purposes of subdivision (6) of subsection 1 of section  144.020 , a hotel, motel, tavern, inn, restaurant, eating house, drugstore, dining car, tourist cabin, tourist camp, or other place in which rooms, meals, or drinks are regularly served to the public shall remit tax on the amount of sales or charges for all rooms, meals, and drinks furnished at such hotel, motel, tavern, inn, restaurant, eating house, drugstore, dining car, tourist cabin, tourist camp, or other place in which rooms, meals, or drinks are regularly served to the public.  Any subsequent sale of such rooms, meals, or drinks shall not be subject to tax if the initial sale was an arm's length transaction for fair market value with an unaffiliated entity. If the sale of such rooms, meals, or drinks is exempt or excluded from payment of sales and use taxes, the provisions of this subsection shall not require the hotel, motel, tavern, inn, restaurant, eating house, drugstore, dining car, tourist cabin, tourist camp, or other place in which rooms, meals, or drinks are regularly served to the public to remit tax on that sale.

Pursuant to section 144.018.3, RSMo, Applicant shall remit tax on the amount of sales or charges for meals or drinks served to the public.

Applicant and its partner hotel would rather the hotel bill the customer for the amount of tax in the subsequent transaction. However, section 144.018.3 RSMo, clearly states that any subsequent sale of meals or drinks are not subject to tax if the initial sale was an arm's length transaction for fair market value with an unaffiliated entity. Applicant and the hotel contracted for their catering services in an arm's length transaction for fair market value, therefore, the subsequent sale of the food to the guests is not subject to tax.

Therefore, Applicant is responsible for collecting and remitting tax on its sales of food and drinks to the hotel in conjunction with its catering services.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford