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Tex. Comp. Dec., STAR 200606685H (Jun. 28, 2006)

Tex. Comp. Dec., STAR 200606685H (Jun. 28, 2006)

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Published by: Paul Masters on Sep 19, 2011
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Texas Comptroller of Public Accounts STAR System
200606685HHEARING NO. 47,145RE: **************TAXPAYER NO.: **************AUDIT OFFICE: **************AUDIT PERIOD: APRIL 1, 2001 THROUGH SEPTEMBER 30, 2004SALES AND USE TAX/RDTBEFORE THE COMPTROLLEROF PUBLIC ACCOUNTSOF THE STATE OF TEXASELEANOR H. KIMChief Administrative Law JudgeKACI J. PRICERepresenting Tax Division**************Representing PetitionerCOMPTROLLER'S DECISIONPRELIMINARY DISCUSSION:At Petitioner’s request, this Decision is based on the written submissions of the parties.Official notice has been taken of all records of the Comptroller's office thatpertain to Petitioner and the issues involved in the case. Unless otherwiseindicated, all Section references are to Title 2 of Texas Tax Code and allreferences to Rules are to sections of Title 34, Texas Administrative Code.PETITIONER’S CONTENTIONS:1. Petitioner contends that the auditor erroneously scheduled rentals of realproperty in the audit.2. Petitioner contends that it detrimentally relied on the advice of aComptroller employee.FINDINGS OF FACT:1. Petitioner has a facility located in the Texas hill country. Petitioneradvertises that it “is a full service facility offering the finest inatmosphere, service, & cuisine” and that it can tailor an event to thecustomer’s needs.
 
2. Petitioner was audited for sales and use tax compliance for theabove-captioned period and was assessed a tax deficiency and interest pursuantto a Texas Notification of Audit Results dated July 1, 2005. Petitioner’srequest for redetermination resulted in this proceeding.3. The audit adjustments consist of taxable sales (Exam 1) and taxablepurchases on which no tax was paid (Exam 2).4. All transactions scheduled in Exam 1 are described as “facility rental.” 5. The auditor noted in the audit plan that Petitioner itemizes charges forfacility rental, catering, labor, and supplies. Petitioner collected sales taxon the total invoice charge in 2001 and part of 2004, but for the remainder of the audit period (2002, 2003, and January 2004), Petitioner did not collectsales tax on the separately-stated charge for facility rental. The auditorscheduled facility rental charges in connection to catering services in Exam 1.6. The examining auditor reviewed Petitioner’s general ledgers for purchases.Because no invoices were presented, the auditor scheduled all taxable items inExam 2. Included in Exam 2 are purchases of tangible personal property,including equipment, ovens, screens, lights, carpet, computers, and buildingmaterials and purchases of taxable services, such as landscaping services,painting, and electric repair.7. Petitioner does not own the building, but instead, leases it from the owner.Petitioner submitted a copy of an amendment to the lease agreement dated 2004,but did not provide a copy of the original lease. The amendment provides thatthe lease commenced on July 1, 2000 and is scheduled to expire on December 31,2007, with the right to extend the lease for another two years. Paragraph 3 of the amendment expressly provides that the tenant (i.e., Petitioner) shall notoperate a kitchen or cook food on the premises and requires that all foodserved at the premises must be cooked offsite.8. Petitioner’s website indicates that Petitioner offers several menus. Duringthe audit period, Petitioner did not prepare the food that was served at itsfacility. Once the customers made arrangements with Petitioner for the food,Petitioner hired others to actually prepare the food. Petitioner billed thecustomers for the prepared food served at the facility.9. Petitioner was initially advised to collect tax on the total invoice charge,which is why it collected tax in 2001. Subsequently, Petitioner was advisedthat the charges for facility rentals were not taxable, and Petitioner ceasedcollecting tax on the facility rentals. Claimant did not identify who gave theadvice and did not present any evidence to establish the content of theinformation conveyed. In 2004, Petitioner visited the Comptroller’s fieldoffice in CITY and was told that it must collect tax on the total invoicecharge, and thereafter, Petitioner began collecting tax on facility rentals.CONCLUSIONS OF LAW AND DISCUSSION:Petitioner’s contentions should be denied.During the audit period, Petitioner catered events and sold food ready forimmediate consumption. Food prepared, sold, or served by caterers is subjectto tax. Rule 3.293(b)(5). Petitioner collected sales tax on food chargesbilled to its customers, but did not collect tax on the facility rental chargesfor part of the audit period. The auditor scheduled the charges for facility
 
rentals in Exam 1, and at issue in this hearing is the taxability of thosecharges.Petitioner contends that Exam 1 should be deleted because facility rentalcharges constitute the rentals of real property, which are not subject to salestax. On the other hand, the Tax Division contends that Exam 1 should be upheldbecause the adjustments relate to transactions involving facility rentals withthe sale of food. Citing Rule 3.293(f)(5), the Tax Division argues thatPetitioner’s charges for facility rentals are taxable as part of the sellingprice of the food sold ready for immediate consumption. In support of itscontention, the Tax Division cites to Comptroller’s Decision Nos. 29,039 (1992)and 34,142 (1996), and STAR Accession Nos. 9610050L (October 31, 1996) and8603T0706B03 (March 14, 1986). All agency documents cited by the Tax Divisionstate in one way or another that a charge for room or facility is taxable if itis connected to the sale of food for immediate consumption.Petitioner attempts to distinguish its facts by contending that it does notprepare the food served at its facility and that it acts merely as a conduitfor the sale of the food between the customers and the food preparers. Insupport thereof, Petitioner points to its lease agreement with the buildingowner that prohibits food from being prepared on the premises. The TaxDivision questions the accuracy of Petitioner’s representation and points outthat Petitioner purchased ovens, which are scheduled in the audit. Regardless,the Tax Division contends that Petitioner can be the seller of the food even if it does not actually prepare the food.A “seller” or “retailer” is “a person engaged in the business of making salesof taxable items of a kind the receipts from the sale of which are included inthe measure of the sales or use tax…”. SECTION 151.008. A sale includes thefurnishing, preparation, or service of meals for consideration. SECTION151.005(6). The use of the disjunctive in the statute makes clear that a saleof a taxable item occurs if any one of the enumerated activities is done forconsideration. See also, SECTION 151.314(c)(3) (Food served, prepared, or soldready for immediate consumption in or by restaurants or like places of businessare excluded from the tax exemption). Even if Petitioner did not prepare thefood, it furnished or served the food at its facility for consideration;therefore, Petitioner made sales of taxable items and falls within thedefinition of a seller or retailer.Moreover, Petitioner solicits customers, negotiates the sales prices withcustomers, makes arrangements with third parties to fulfill Petitioner’scontract, and bills the customers for the third party’s work. These activitiesare activities of a seller and are beyond what a mere conduit would perform.See e.g., Stoker Management, Inc. v. Sharp, 958 S.W.2d 288 (Tex. App. – Austin,1997, no writ). In fact, Petitioner collected sales tax during the auditperiod, demonstrating its own belief that it was the seller of the food servedat its facility. Petitioner’s contention that it is not a seller is withoutmerit and should be rejected.Rule 3.293(f)(5) provides that the sales price of meals and food sold by acaterer “includes any separately stated charge for the room or facility or theuse by a customer of any items, such as tables, chairs, tableware, andtablecloths.” It further provides that the “separately stated charge for useof these items is not considered a rental to the customer but an expenseconnected with the sale of the meals or food products.” Rule 3.293(f)(5)construes Section 151.007 for food operators. Under Section 151.007, the salesprice of a taxable item is the total amount received from the sale without the

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