Was one nonitemized admission charge for dinner and a live musical or theatrical show taxable as a bundled transaction?

Plain-English summary

A dinner club charged one nonitemized admission price for a several-hour event combining a meal with live music and drama. Prepared meals were generally taxable, while the musical or theatrical performance by itself generally was not.

Washington's bundled-transaction statute taxes the bundle when any component is taxable, unless an exception applies. The club argued that the show was the true object and the dinner was provided exclusively with it. Even if those points were accepted, the exception also required the meal to be essential to using the entertainment service.

The meal enhanced the event but was not indispensable to viewing the performance—the show could go on without dinner. The exception therefore failed.

Result: retail sales tax and retailing B&O tax applied to the full admission charge, and the petition was denied.

What this means for you

Dinner theatres and event operators

A single price for taxable food and nontaxable entertainment can make the whole charge taxable. Examine whether each component is separately identified and whether the taxable property is truly indispensable to the service.

Accountants and tax professionals

The true-object argument alone was insufficient. The statutory exception required all three elements, including that the tangible personal property be essential to use of the service.

Common questions

Q: Was the live show itself generally taxable?

A: No, but the package also included a taxable prepared meal for one nonitemized price.

Q: Why was the meal not treated as merely incidental?

A: It was a distinct product and was not essential or indispensable to viewing the show.

Q: What amount was taxed?

A: The full nonitemized admission price for the bundled transaction.

Citations and references

• RCW 82.08.190(1) and (4)(a)
• RCW 82.08.195(1) and (2)
• RCW 82.08.020
• WAC 458-20-124 and WAC 458-20-183(2)(m)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 32WTD7.pdf
• Source archive: Volume 32 ZIP (member 32 WTD 007.pdf)

Original ruling text

Det. No. 11-0006, 32 WTD 7 (January 10, 2013)

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Cite as Det No. 11-0006, 32 WTD 7 (2013)

BEFORE THE APPEALS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition For Correction of )
Assessment of
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…
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DETERMINATION
No. 11-0006
Registration No. . . .
Doc. No. . . ./Audit No. . . .
Docket No. . . .

RCW 82.08.190 AND .195: RETAIL SALES TAX – RETAILING B&O TAX – BUNDLED TRANSACTION –SALE OF DINNER AND MUSICAL/DRAMA SHOW – NON-ITEMIZED ADMISSION CHARGE. The sale of dinner (generally subject to sales tax) and a musical/drama show (generally not subject to sales tax) for one non-itemized admission charge is a bundled transaction subject to retail sales tax because the meal is not essential or indispensible to the viewing of the performance. Headnotes are provided as a convenience for the reader and are not in any way a part of the decision or in any way to be used in construing or interpreting this Determination. De Luca, A.L.J. – A sole proprietorship (the taxpayer) that operates a . . . dinner club[/theatre] protests the assessment of retailing business and occupation (B&O) tax and retail sales tax on the single non-itemized admission charge that includes both musical entertainment and dinner. Held: the taxpayer was selling prepared meals and musical entertainment as a bundled transaction that is subject to retail sales tax on the full price. Petition denied.1 ISSUE Under RCW 82.08.190 and .195, is the sale of dinner and a musical/drama show for one nonitemized admission charge a bundled transaction subject to retail sales tax, or is the transaction not bundled because the dinner is essential to the show and is provided exclusively in connection with the show, and the true object of the transaction is the show?

1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410. Nonprecedential portions of this determination have been deleted.

Det. No. 11-0006, 32 WTD 7 (January 10, 2013)

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FINDINGS OF FACT
The taxpayer is a sole proprietorship . . . . Its business activities in Washington during the examination period included operating a . . . dinner club/theatre. The business opens at . . . . The customers are entertained by live music [and a] drama . . . . [Then the audience receives their meal] . . . and enjoy[s] more entertainment. The entire event lasts [several] hours. The taxpayer charged a single non-itemized admission price . . . per customer. . . . The taxpayer protests the portion of the audit report that assessed $. . . in retail sales tax, retailing B&O tax, and interest, for the period from July 1, 2008, through June 30, 2009. . . . ANALYSIS RCW 82.08.190 and .195 became effective July 1, 2008. They are referenced as the “bundled transactions” statutes. A “bundled transaction” is defined as: (1)(a) “Bundled transaction” means the retail sale of two or more products, except real property and services to real property, where: (i) The products are otherwise distinct and identifiable; and (ii) The products are sold for one nonitemized price. (b) A bundled transaction does not include the sale of any products in which the sales price varies, or is negotiable, based on the selection by the purchaser of the products included in the transaction. RCW 82.08.190(1). The statute then declares in pertinent part: (4) A transaction that otherwise meets the definition of a bundled transaction is not a bundled transaction if it is: (a) The retail sale of tangible personal property and a service where the tangible personal property is essential to the use of the service, and is provided exclusively in connection with the service, and the true object of the transaction is the service; RCW 82.08.190(4). RCW 82.08.195 imposes the retail sales tax by providing in pertinent part: (1) Except as provided in subsection (6) of this section, a bundled transaction is subject to the tax imposed by RCW 82.08.020 if the retail sale of any of its component products would be subject to the tax imposed by RCW 82.08.020. (2) The transactions described in RCW 82.08.190(4) (a) and (b) are subject to the tax

Det. No. 11-0006, 32 WTD 7 (January 10, 2013)

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imposed by RCW 82.08.020 if the service that is the true object of the transaction is subject to the tax imposed by RCW 82.08.020. If the service that is the true object of the transaction is not subject to the tax imposed by RCW 82.08.020, the transaction is not subject to the tax imposed by RCW 82.08.020. In the present matter, the taxpayer sells a dinner along with a musical show/theatre performance for one non-itemized price/admission charge. The dinner, by itself, is generally subject to retail sales tax, such as in a restaurant or similar business. WAC 458-20-124. The musical show/theatre performance, by itself, is generally not subject to retail sales tax. WAC 458-20183(2)(m). On its face, this sale would appear to be a bundled transaction as defined by RCW 82.08.190(1) because there is the sale of two products that are otherwise distinct and identifiable and are sold for one non-itemized price and one of those component products would be subject to retail sales tax. RCW 82.08.195(1). But the taxpayer cites the second sentence in RCW 82.08.195(2) to support its argument that the dinner and musical show/theatre performance are not subject to retail sales tax and, therefore, are not a bundled transaction, because the service (the musical show/theatre performance) is the true object of the transaction and it is not subject to the retail sales tax imposed by RCW 82.08.020. Accordingly, we must review the definition of what is not a bundled transaction. As quoted above in RCW 82.08.190(4)(a) a transaction that otherwise meets the definition of a bundled transaction is not a bundled transaction if it is:

1. The retail sale of tangible personal property and a service where the tangible personal
   property is essential to the use of the service;
2. And the tangible personal property is provided exclusively in connection with the
   service;
3. And the true object of the transaction is the service.
   We agree that the meal is provided exclusively in connection with the musical show/theatre. And it is arguable that the true object of the transaction is the musical show. But we conclude that the sale of the meal is not essential to the use of the musical show/theatre performance. The word “essential” is not defined by the statute. Thus, we will use a dictionary definition. “Words in a statute are given their ordinary and common meaning absent a contrary statutory definition.” John H. Sellen Constr. Co. v. Department of Rev., 87 Wn.2d 878, 882, 558 P.2d 1342 (1976). “Essential” is defined as: “a: something basic or fundamental esp. belonging to or forming part of the minimal indispensible body, character, or structure of a thing…b: something necessary, indispensible, or unavoidable.” Webster’s Third International Dictionary 777 (1993). We conclude that the meal is not indispensible to the use or viewing of the musical show/theatre performance. The show can go on without the dinner. In other words, the dinner certainly adds to the overall enjoyment value of the event, but it is not indispensible to the performance of the musical show/theatre performance. We take note that many musical shows, concerts, theatre performances, etc., of similar length are performed without providing dinner or other meals.

Det. No. 11-0006, 32 WTD 7 (January 10, 2013)

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Accordingly, we conclude that the taxpayer was selling a bundled transaction that was subject to retail sales tax and retailing B&O tax during the period from July 1, 2008, through June 30, 2009. DECISION AND DISPOSITION Taxpayer's petition is denied Dated this 10th day of January, 2011.