How should a Utah hotel report sales tax and tourism tax on liquor, mixed drinks, set-ups, and wine when tax was already paid on the liquor purchase?

Plain-English summary

Utah Private Letter Ruling 91-026 explained how a hotel should report tax on liquor, mixed drinks, set-ups, and wine.

The Department of Alcoholic Beverage Control collected sales tax when it sold liquor and would not accept an exemption certificate.

The Tax Commission therefore allowed the seller to avoid taxing that already-taxed liquor cost again when reporting the later drink sale, while still taxing the remaining set-up amount.

The entire proceeds remained subject to the separate 1% tourism tax.

Tax-included drink prices

The Commission allowed taverns and clubs to sell drinks with sales tax included in the stated price.

Customers had to be told that tax was included.

The notice could appear on a sign in the facility or on the bar bill, and the bar bill should be separate from bills for other items.

Sales-tax calculation

The seller started with total proceeds from liquor, mixed drinks, set-ups, and wine.

It then subtracted the cost of the liquor that had already been taxed.

The seller backed sales tax out of the remaining amount to determine taxable sales and the sales tax to remit.

Tourism tax

The Commission treated the 1% tourism or restaurant tax differently.

The total drink proceeds were subject to that tax, including the liquor-cost portion removed from the regular sales-tax calculation.

Holding

Under the stated practices:

• Tax-included drink pricing was allowed with clear customer notice.
• The bar bill should be separate from other charges.
• Previously taxed liquor cost was subtracted before computing regular sales tax on the remaining amount.
• Sales tax was backed out of that remainder.
• The full proceeds were subject to the 1% tourism tax.

What this means for you

Hotels, bars, taverns, and clubs

Tax-included pricing requires clear notice, and the historical ruling called for a separate bar bill.

Hospitality accountants

Keep liquor-cost records separate from total drink proceeds. The ruling used different bases for regular sales tax and the tourism tax.

Tax professionals

Verify current alcohol-purchase procedures, rates, invoicing rules, and tourism or restaurant taxes before applying this 1991 calculation.

Common questions

Q: Could the drink price include sales tax?

A: Yes, if the customer was told that tax was included.

Q: How was regular sales tax calculated?

A: The seller subtracted previously taxed liquor cost from total proceeds and backed sales tax out of the remainder.

Q: Was the liquor-cost portion also excluded from the tourism tax?

A: No. The Commission said total proceeds were subject to the 1% tourism tax.

Q: Could customer notice appear on the bill?

A: Yes. The ruling allowed a facility sign or a notice on the separate bar bill.

Key source language

• Included tax: taverns and clubs could sell drinks “with tax included as long as the customer is aware that tax is included.”
• Sales-tax base: the seller should “reduce the total proceeds by the cost of the liquor sold, then divide the tax out of the remainder.”
• Tourism-tax base: “The total proceeds are subject to the 1% tourism (restaurant) tax.”
• Billing: “The bar bill should be separate from the bill for other items.”

Citations and references

• Utah Admin. Rule R865-19-2S
• The official response describes the 1% tourism or restaurant tax without giving a numbered statutory citation.

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 91-026
• Scope note: the Department of Alcoholic Beverage Control had already collected sales tax on the liquor and would not accept exemption certificates.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

November
22, 1991 Response from Tax Commission

November
4, 1991 Letter from XXXXX of XXXXX

XXXXX

Re:
Sales Tax on Liquor

Dear
Mr. XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on how to collect or apply sales tax on the sale of liquor, mixed drinks, set-ups or wine.

The
Tax Commission policy is to refer such requests to the division most qualified to analyze the request and make recommendations concerning it. As such, your request was referred to the Tax Commission's Auditing Division for their analysis and recommendations. The division's recommendations are as follows:

It
is true that the Department of Alcoholic Beverage Control has collected sales tax as part of the sale of all its products and will not accept an exemption certificate regardless of who the customer is. It is also true that the Tax Commission has allowed taverns and clubs to sell drinks with tax included as long as the customer is aware that tax is included. The customer notice could be a sign displayed in the facility or a notice printed on the bar bill. The bar bill should be separate from the bill for other items.

In
computing and reporting tax on sales of liquor which has previously been taxed, the seller should reduce the total proceeds by the cost of the liquor sold, then divide the tax out of the remainder. You then have the amount subject to sales tax. The total proceeds are subject to the 1% tourism (restaurant) tax. An example of the calculation follows:

Total
proceeds XXXXX

Less
cost of liquor sold XXXXX

Sale
of set-ups XXXXX

Taxable
amount (XXXXX + 1.0725) XXXXX

Tourism
tax (XXXXX X .01) XXXXX

Tourism
tax on cost (XXXXX) X .01) XXXXX

Sales
tax (XXXXX X .0625) XXXXX

XXXXX

For
the Commission,

Joe
B. Pacheco

UTAH
STATE TAX COMMISSION

XXXXX,
Auditing

160
East 300 South

Salt
Lake City, UT 84134

Re:
Sales taxability of liquor and mixed drinks

Dear
Mr. XXXXX:

I
spoke with XXXXX, the afternoon of Nov. 1st, regarding the purchase of liquor and the sale of liquor and mixed drinks. This is to request written confirmation of that letter.

These
are the facts as I understand them:

Utah
laws and regulations require the collection of sales tax on the retail sale of tangible personal property.

Property
sold for resale is not a retail sale and is therefore not taxable. The Commission requires that an exemption certificate be given to the vendor; the property is then purchased without tax but the subsequent retail sale is taxable.

There
are no statutory or regulatory exceptions for liquor.

R865-19-2S
requires that sales taxes be separately stated on invoices and receipts.

The
Liquor Commission will not accept a resale certificate. The Liquor Commission charges sales tax on all liquor sold, but includes it in a lump sum price for the merchandise and does not separately state sales tax on the invoice or receipt.

The
Tax Commission has a long-standing unwritten policy of allowing vendors to include tax in the stated price of an item, as long as the receipt or invoice clearly states that sales tax is included.

The
Tax Commission will not require the Liquor Commission to accept resale certificates, and therefore has made exceptions from the normal handling of sales tax. The Commission allows credit, for sales tax paid on the original liquor purchase, against subsequent resales.

It
Is my understanding that our hotel is to compute sales tax in the following manner:

1.
Receipts for liquor sales will include a statement that the charge for the liquor, mixed drink, set-up, or wine includes tax.

2.
In computing and reporting total taxable sales, the hotel will subtract liquor costs (all liquor is sold at cost as required by law). This net figure will represent the sales price of the set-up including sales tax. The sales tax will be factored out of this total to arrive at total taxable sales. This is illustrated as follows:

Total
liquor, mixed drinks, set-ups and wine sales XXXXX

less:
liquor purchases or costs XXXXX

Gross
set-up sales amount XXXXX

Taxable amount computed (XXXXX divided by 1.0625) XXXXX

Sales tax
to be remitted (XXXXX X 0.0625) XXXXX

Gross
set-up amount Including tax XXXXX

I
will appreciate your assistance in confirming and clarifying position, and the way XXXXX and its divisions are required to remit the tax in question.

Respectfully
yours,

XXXXX

Excise
Tax Manager

Telephone:XXXXX