Was the full price of an amusement-center party package taxable when it bundled attraction admissions, a room, hosting, and food?

Subject

Party Packages/Transactions involving the sale of admissions and tangible personal property are taxable.

Plain-English summary

Virginia treated the amusement center's entire party-package charge as taxable because one price included both admissions and food. The packages bundled attraction access with a private room, party host, setup and cleanup, and birthday food items.

Admissions and participation charges are ordinarily not taxable when they provide no right to food or other tangible property. But when the price includes food, Virginia's regulation and prior rulings treated the total charge as a taxable sale. The taxpayer's argument that customers principally wanted the party experience did not change the bundled food component.

The Department also clarified its own precedent. P.D. 11-24 had treated a food-and-admission package differently after misapplying P.D. 10-167, a ruling whose transactions included no food. P.D. 14-1 rescinded that conflicting result.

Although the assessment was legally correct, Virginia removed party-package transactions from February 25, 2011 through the end of the audit because taxpayers had received conflicting guidance during that period.

What this means for you

• A single charge for amusement admissions plus food can make the entire package taxable.
• Calling food incidental or emphasizing services did not change the outcome.
• Historical audit treatment can depend on the dates when conflicting written guidance was outstanding.

Common questions

Q: Are amusement admissions always taxable in Virginia?
A: No. The cited regulation exempted admission or participation charges that carried no right to food or other tangible property.

Q: Could the center tax only the food portion?
A: Not under this single-price package analysis; the full package charge was taxable.

Q: Why was part of the audit removed?
A: The Department had published conflicting guidance beginning February 25, 2011.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-609.5(1).
• 23 VAC 10-210-30 and 23 VAC 10-210-930.
• Public Documents 02-77, 08-76, 10-167, 11-24, and 14-1.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-41

Original ruling text

March 20, 2014

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

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period May 2009 through April 2012. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer operates a sports themed amusement center that provides attractions such as an arcade, laser tag, go-karts, mini golf, mini bowling, a driving range, batting cages and a Kid Zone climbing area. Admission to these attractions may be purchased individually by the Taxpayer's customers. The Taxpayer also sells Party Packages (primarily for birthday parties) and Kid Zone Party Packages.

The Birthday Party Package includes one hour in a private room, a dedicated party host, a prize wheel spin, a free future round of mini golf and birthday food items. Also included is a choice of admission to one, two or three of the attractions, depending on the level of package purchased. The Kid Zone Party Package is essentially the same, but it also includes admission to the Kid Zone Climbing apparatus as one of the attractions. Other services included in the packages are set-up and clean-up of the party room. Hereafter, the Birthday Party Package and the Kid Zone Party Package will be referred to as the party packages.

The Taxpayer was audited by the Department and assessed tax on the charges for the party packages. The Taxpayer contests the assessment, contending the true object of the transaction sought by the purchaser of the party package is the party experience and not the food items included as part of the package.

DETERMINATION

Relying on Va. Code § 58.1-609.5 1, Title 23 of the Virginia Administrative Code (VAC) 10-210-4040, Public Document (P.D.) 11-24 (2/25/11) and P.D. 10-167 (8/10/10), the Taxpayer maintains that the party packages are not subject to the tax. The Taxpayer states that the true object of the transaction sought by the purchaser of a party package is the unique party experience offered. The Taxpayer states that the small amount of food items that may be provided to the guests is inconsequential to the entire party experience. The Taxpayer further states that the monetary value of the tangible personal property at issue is insignificant when compared to the value of the admission to the attractions, the rental of a private room and a dedicated host for an hour, and the other ancillary experiences at the Taxpayer's facility. The Taxpayer contends that the purchase of the party package experience is a service that is not subject to the Virginia sales tax. The Taxpayer requests that the tax assessed in the audit with respect to the party packages be abated. The Taxpayer has remitted payment with respect to the non-contested portion of the audit.

Virginia Code § 58.1-602 defines sales price as "the total amount for which personal property or services are sold."

Title 23 VAC 10-210-30 states:

The tax does not apply to sales of tickets, fees, charges, or voluntary contributions for admissions to places of amusement, entertainment, exhibition, display, or athletic contests, nor to charges made for participation in games or amusement activities. However "cover charges" or "minimum charges" which include the provision of or the entitlement to food, drinks, or other tangible property constitute a sale of property and are subject to the tax. Admission fees or "door charges" which entail no right to receipt of or credit toward the purchase of food or other tangible personal property are not subject to the tax.

The Department has previously determined that transactions involving the sale of admissions and tangible personal property are taxable. In P.D. 02-77 (5/2/02), the taxpayer was a hotel and conference center that operated a theatre. The taxpayer sold tickets for theatre admissions only, and for dinner theatre packages that included admission to the theatre and a meal. At issue was the allocation of tax on packages that included admission to the theatre and a meal. Pursuant to Title 23 VAC 10-210-30, Title 23 VAC 10-210-930 (sale of meals) and the Va. Code § 58.1-602 definition of sales, it was determined that the total charge for the dinner theatre packages was taxable.

In P.D. 08-76 (6/6/08), the taxpayer was a nonprofit membership corporation. As a result of the Department's audit, the taxpayer was assessed tax and interest on the sale of event tickets to members that included catered meals. The taxpayer contested the assessment on the basis that the primary purpose of the events was not the provision of the catered meal, but rather the entertainment or business purposes. In addition, the taxpayer claimed that it paid tax to its vendors for the taxable goods and services purchased for such events. In that case, the taxpayer sponsored three events. The event tickets sold to members included the provision of a catered meal. Although the sales did not apply to admissions, the admission was provided in conjunction with a taxable meal. The fact that the primary purpose of the events may not be the catered meal did not alter the fact that the ticket price included the provision of a taxable meal. Based upon the definition of sales price, the total charge for the ticket, which included the provision of a catered meal, was deemed taxable. Accordingly, the assessment of tax to the sale of tickets that included the provision of catered meals was correct. This ruling is consistent with the Department's policy set out in P.D. 02-77.

In this instance, the Taxpayer charges a single price for the party packages, which include admission to the amusement center attractions and food items served to the party guests. Based upon the aforementioned authorities, the total charge for the party packages is subject to the tax. The fact that the primary purpose of the party packages may not be the food items provided does not alter the fact that the charge includes the provision of taxable food. Public Documents 02-77 and 08-76 reflect the Department's policy regarding the application of the tax to transactions for the sale of admissions and food. As such, these public documents support the Department's position in this instance to hold the party packages at issue subject to the tax. Accordingly, the tax as assessed is correct.

The determination in P.D. 11-24 (2/25/11) is rescinded by P.D. 14-1 (1/3/14) because the determination in P.D. 10-167 (8/10/10) was misapplied to the facts presented in P.D. 11-24. The transactions in P.D. 10-167 did not include the provision of food. Accordingly, P.D. 10-167 could not be applied to make a determination in P.D. 11-24 where food was provided along with admissions. As such, P.D. 11-24 and P.D. 10-167 are not applicable to the facts in the instant case. P.D. 14-1 reflects the correct application of the tax in instances where food is provided along with admissions. A copy of P.D. 14-1 is enclosed.

CONCLUSION

Based upon this determination, the assessment is correct as issued. However, because conflicting guidance was provided in P.D. 11-24 regarding the application of the tax in these instances, the audit will be revised to remove all party package transactions from February 25, 2011 through the end of the audit period. Once the revisions are made by the audit staff, a revised bill with interest accrued to date will be mailed to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, 600 E. Main Street, 23 rd Floor, Richmond, Virginia 23219, Attn: *. lf you have any questions concerning payment of the assessment, you may contact at **.

The Code of Virginia section, regulations, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this response, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5457974817.P