Could restaurants buy foil wraps, bamboo skewers, napkin bands, and carryout foil pans tax-free for resale?

Subject

Items furnished with meals and are disposed of after use by only one customer

Plain-English summary

A foodservice distributor was assessed tax on sales of foil sheets and gold foil wrap, bamboo skewers, paper napkin rings and bands, and aluminum foil pans with foil-board lids. Its restaurant customers used the wraps for baked potatoes, the skewers for shish kebabs, the paper bands to secure napkins around cutlery, and the lidded pans for deli carryout orders.

Virginia concluded that every contested item was furnished with a meal and disposed of after use by one customer. Under 23 VAC 10-210-930(F), disposable items of that kind were considered part of the meal and could be purchased by restaurants under a resale exemption certificate. The Department therefore removed the contested sales from the audit and issued the distributor a refund of the related tax and interest.

The ruling contrasted those single-customer disposables with items a restaurant buys for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, and tablecloths, which remained taxable.

What this means for you

• A restaurant disposable could qualify for resale when it accompanied the meal and was discarded after use by one customer.
• The item's actual function mattered: wraps, skewers, napkin bands, and carryout containers qualified on the stated uses.
• Reusable serving items and restaurant equipment were purchases for the restaurant's own use, not exempt resale purchases.

Citations and references

• 23 VAC 10-210-930(F), treatment of disposable items furnished with meals and restaurant-use items.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-62

Original ruling text

May 10, 2007

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer") for the period November 2001 through December 2004. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a marketer and distributor of food and foodservice products to restaurants and other businesses. The Department's auditor assessed tax on the sale of aluminum foil sheets and gold wrap; bamboo skewers; paper napkin rings and bands and aluminum foil pans with foil lids. The Taxpayer contends that these are disposable items purchased by its customers and should qualify for the resale exemption pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-930 F. The Taxpayer has paid the assessment and requests a refund of the tax and interest assessed on the contested items.

RULING

Title 23 VAC 10-210-930 addresses the application of the tax to purchases by restaurants in connection with the provision of meals and states in subsection F:

Paper doilies, paper placemats, plastic silverware, bags and similar items furnished with meals and which are disposed of after use by only one customer are also considered a part of a meal and can be purchased exempt under a Resale Certificate of Exemption. Other items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption.

The information provided indicates the restaurants use the foil sheets and gold foil wrap to wrap baked potatoes that are served to customers as a part of their meal. The foil wrap is disposed of after use by one customer. Restaurants purchase bamboo skewers to serve shish-ka-bobs to their customers as a part of their meal. The bamboo skewer is disposed of after use by one customer. The paper napkin rings and bands are used to secure the napkin around the silverware or plastic cutlery. The paper napkin rings and bands securing the silverware are served with the meal and disposed of after use by one customer. The aluminum foil pan with foil board lid is a round .0030 gauge aluminum foil pan with a lid. The container is purchased by deli customers to be used for carryout orders. The container is disposed of after use by one customer.

The contested items are furnished with meals and are disposed of after use by only one customer. Based on Title 23 VAC 10-210-930 F, it is my determination that the contested items are considered a part of the meal and can be purchased by restaurants exempt of the tax under the resale exemption. Therefore, the audit will be adjusted to remove the contested sales, and a refund will be issued shortly to the Taxpayer.

The regulation cited and other reference documents are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-649868718T