Could a poolside cabana include Virginia sales tax in posted item prices instead of adding it separately?

Plain-English summary

Virginia gave the cabana operator specific permission to include retail sales tax in its posted prices beginning May 1, 2007. The outdoor setting made a conventional point-of-sale system impractical, and the operator showed that the cost outweighed the savings.

Price listings and signs had to state that sales tax was included. At the then-current 5% rate, the operator divided tax-inclusive gross receipts by 1.05 to determine the tax to remit.

The permission did not need annual renewal but applied only to retail sales tax. Including a local meal and beverage tax in menu prices required separate approval from the locality.

What this means for you

• Tax-included pricing required express Department authorization under the stated law.
• Signs had to clearly tell customers that sales tax was included.
• The divisor depended on the applicable tax rate and is not current merely because it appears here.
• State permission did not cover locally administered meal tax.

Common questions

Was tax-included pricing automatically allowed?

No. The ruling granted specific permission after an impracticality showing.

Did the operator need to renew every year?

The ruling said no annual request was needed.

Did the authorization include local meal tax?

No. Separate local permission was required.

Citations and references

• Va. Code §§ 58.1-614(D), 58.1-625, and 58.1-628.
• 23 VAC 10-210-340(A).

Subject

Price listings should indicate that the sales tax is included in the price of each item

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-4

Original ruling text

January 15, 2007

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter regarding * (the "Taxpayer"), in which you request permission to include the sales tax on sales made at a pool side cabana during the summer season.

Virginia Code § 58.1-625 requires a dealer to separately state the amount of the tax and add the tax to the sales price or charge. Title 23 of the Virginia Administrative Code 10-210-340 A provides additional guidance on the statutory requirement, explaining "[i]dentification of the tax by a separate writing or symbol is not required provided that the amount of the tax is shown as a separate item on the record of the transaction."

Virginia law allows the inclusion of the sales tax within the selling price only in very limited situations. Virginia Code § 58.1-614 D provides that when a dealer is able to demonstrate to the satisfaction of the Tax Commissioner that it is impractical to collect the tax in accordance with the bracket system provided for in Va. Code § 58.1-628, the taxpayer may be authorized to remit an amount based on a percentage of gross receipts that takes into account the inclusion of the sales tax. In the Taxpayer's situation, the costs associated with establishing a point of sale system in an outdoor setting outweigh the savings realized in establishing a tax inclusive pricing venue for guests who would be served more conveniently and quickly.

Based on the Taxpayer's discussion with a member of my staff and under the provisions set forth in Va. Code § 58.1-614 D, permission is granted for the Taxpayer to include the sales tax in its cabana prices beginning May 1, 2007. This permission does not need to be requested annually and applies only to the retail sales tax. The Taxpayer's price listings and signs advertising the items for sale should indicate that the sales tax is included in the price of each item.

Based on the current sales and use tax rate of 5%, the Taxpayer should divide the total receipts for the period, inclusive of the sales tax collected, by a factor of 1.05 to derive the amount of sales tax that must be remitted to the Department.

The Taxpayer must seek separate permission from its locality to include the local meal and beverage tax in any menu item prices.

The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any additional questions, please contact * of the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-877771858Q