Did a Warwick airline caterer have to collect sales tax on separately stated airport port fees added to its food invoices?

Plain-English summary

The airline caterer had to collect Rhode Island sales tax on the total invoice, including the separately stated airport port fee. The fee was part of the caterer's gross receipts from furnishing food and could not be removed from the tax base merely because it was passed through to the State.

The Warwick caterer supplied food to airlines at the State airport. As a condition of doing business there, the Department of Transportation's Airport Division required the caterer to pay a fixed eight percent of gross airline sales as “port fees.”

The caterer separately stated the port fee on airline invoices in addition to the food charge. It asked the Division to confirm that sales tax applied to both amounts together.

R.I. Gen. Laws § 44-18-7(1)(D) included the furnishing, preparation, or serving of food and any other charge connected with it. Sections 44-18-12, 44-18-13, and 44-18-18 based the tax on the retailer's sales price and gross receipts. The Division therefore included the port fee in the taxable measure.

What this means for you

Caterers and food-service businesses

A separately stated mandatory fee connected with the food sale may remain part of taxable gross receipts. Passing the amount to another party did not make it tax-free here.

Airport vendors

The State-imposed business condition and the separate invoice line did not change the sales-tax base. The airlines paid tax on the combined food and port-fee charge.

Accountants and tax professionals

Review the statutory definition of the taxable sale and all connected charges. The economic destination of a fee is different from whether it forms part of the customer's price.

Common questions

What was the port fee? Eight percent of the caterer's gross sales to airlines, paid to the State airport authority as a condition of doing business.

Did separately stating the fee make it exempt? No. The fee remained part of gross receipts.

What amount was taxed? The full amount charged to the airline: food products plus port fees.

What sales-tax rate did the source apply? Seven percent, the rate stated in the 1992 order.

Who could rely on the ruling? The requesting taxpayer, subject to later statutory changes and changes in the facts.

Citations and references

• R.I. Gen. Laws § 44-18-7(1)(D) — furnishing food and other connected charges.
• R.I. Gen. Laws § 44-18-12 — sales-price definition.
• R.I. Gen. Laws § 44-18-13 — gross-receipts definition.
• R.I. Gen. Laws § 44-18-18 — sales tax imposed on retailer gross receipts.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1992-08

Original ruling text

Ruling Request No. 92-08

Declaratory Rulings

Ruling Request No. 92-08

Re: Determination of Tax Measure under Sales/Use Tax Law

Request for Ruling

You request a ruling on behalf of your client, a Warwick caterer, as to the appropriate tax measure under the following set of facts.

Facts

A Warwick caterer provides food products to airlines at the State airport. As a requirement to do business at the airport, the State of Rhode Island, Department of Transportation, Airport Division, requires the caterer to pay the state a fixed percentage (8%) of its gross sales to the airlines ("port fees").

When the caterer bills the airlines for the food products, it adds to the invoice, and separately states thereon, the so-called port fees which it is required to pay to the Department of Transportation, Airport Division.

Ruling Requested

The caterer requests a ruling that it is correctly imposing and collecting a sales tax on the total amount charged to the airlines, i.e., food products plus port fees.

Discussion

The pertinent provisions of the sales and use tax law read in part as follows:

44-18-7. Definitions.-- (1) "Sales" means and includes:

(D) The furnishing, preparing, or serving for a consideration of food, meals, or drinks, including any cover, minimum, entertainment, or other charge in connection therewith. (emphasis added)

44-18-12. "Sales price" defined. -- (1) "Sales price" means the total amount for which tangible personal property is sold or leased or rented...

44-18-13. "Gross receipts" defined. -- "Gross receipts" means the total amount of the sales price, as defined above, of the retail sales of retailers.

44-18-18. Sales tax imposed. -- A tax is hereby imposed upon sales at retail in this state, as herein defined, including charges for rentals of living quarters in hotels, rooming houses, or tourist camps, at the rate of six percent (6%) of the gross receipts of the retailer from the sales or rental charges, provided, however, that the tax imposed on charges for the rentals shall apply only to the first period of not exceeding thirty (30) consecutive calendar days of each rental; provided further, however, for the period commencing July 1, 1990 the tax rate shall be seven percent (7%)... (emphasis added)

According to the statutory scheme set forth above, a retailer must collect and remit the tax as measured by its gross receipts. In the facts set forth herein, the gross receipts include the port fees passed on to the airline by the caterer.

Ruling

The caterer is required to impose and collect a sales tax on the total amount charged (i.e., gross receipts) to the airlines.

This ruling may be relied upon by this taxpayer and shall be valid until the applicable statutory provisions are amended in a manner requiring a different result or until the underlying factual presentation changes.

**R. Gary Clark

Tax Administrator

October 23, 1992**