The COMPANY is a retail establishment, similar to a convenience store whose primary business is the sale of prepackaged food items. Prepackaged food items include; boxes of candies, sandwiches, nuts, beverages, yogurt, donuts, and other miscellaneous items similar to movie theatres such as popcorn, fountain drinks, and hot dogs. Note, the customer comes into the COMPANY chooses the items they would like to purchase and pays for them. There are no microwaves, just refrigerators to keep the food cool. Nothing is prepared, served, or packaged by the vendor or customer. Although, there are picnic tables for the customers to sit at, a lot of customers purchase the goodies for the movie theatre down the hall.

I feel that our establishment mirrors more closely a convenience store or a movie theatre and these businesses have been given exemption status from the Tourism Fund tax. I look forward to hearing from you on our establishment and am willing to comply with the final decision made by the Tax Commission.

Sincerely,

NAME

RESPONSE LETTER

DATE

NAME

ADDRESS

RE: Advisory Opinion – COMPANY Request for Exemption from Tourism Tax

Dear NAME,

Pursuant to Utah Admin. Rule 865-12L-17(H) (Rule 17), you are requesting the Tax Commission to determine if the COMPANY is a “restaurant” for purposes of collecting the “restaurant tax,” which is imposed under Utah Code Ann. §59-12-603(1)(b). You state in your letter and by telephone that the COMPANY sells prepackaged food items, including boxes of candies, sandwiches, nuts, beverages, yogurt, donuts, and other items similar to movie theaters, such as popcorn, fountain drinks, and hot dogs. While there are no microwaves, there are refrigerators to keep the food cool. You claim that the COMPANY does not prepare, serve, or package the food that is sold. In addition, there are picnic tables nearby for your customers to eat the food they purchase, and many of your customers take their purchases to the nearby movie theater.

You assert that the COMPANY resembles either a convenience store or a movie theater that sells food, and because both these establishments are exempt from collecting the restaurant tax, the COMPANY should be exempt, also. However, a convenience store is exempt for a different reason than a movie theater. As explained below, should the COMPANY more closely resemble a convenience store, it too would be exempt. But if it more closely resembles a movie theater that sells food, then the COMPANY would not be exempt from collecting the restaurant tax.

Utah Code Ann. §59-12-603(1)(b) allows for the imposition of a tax on all sales “of prepared foods and beverages that are sold by restaurants.” Whether the COMPANY sales are subject to the tax depends on whether is meets the definition of “restaurant,” which includes “any coffee shop, cafeteria, luncheonette, soda fountain, or fast-food service where food is prepared for immediate consumption.” See Utah Code Ann. §59-12-602(4)(a). However, Subsection 602(4)(b) further provides that “restaurant” does not include: “(i) any retail establishment whose primary business or function is the sale of fuel or food items for off-premise, but not immediate, consumption; and (ii) a theater that sells food items, but not a dinner theater.”

A convenience store qualifies for an exemption from collecting the tax under Subsection 602(4)(b)(i). The Commission has previously determined that a typical convenience store’s primary business is not the sale of food prepared for immediate consumption, but the sale of fuel or food items for off-premise, non-immediate consumption. “Primary business,” defined for these purposes in Subsection (C) of Rule 17, “means the source of more than 50 percent of the revenues of the retail establishment.” Accordingly, a convenience store is exempt because its sales of food prepared for immediate consumption comprises less than 50% of its total business.

On the other hand, a theater is a business that would qualify as a “restaurant” had the Legislature not specifically exempted it under Subsection 602(4)(b)(ii). Because of the nature of a movie theater, all or almost all of its sales would be of food prepared for immediate consumption. Accordingly, without this exemption, it would be required to collect the restaurant tax on its sales. Any business that makes sales similar to those made by a theater, yet is not a theater, would be required to collect the restaurant tax.

From the information you have provided, it appears that every item you sell can be consumed immediately. In addition, because of your location in a building with picnic tables nearby and a movie theater down the hall, it appears that most of your customers purchase the food for immediate consumption either before, during, or after a movie. In fact, you state that most of the items you sell are similar to those provided by a movie theater. Because more than 50 percent of the items you sell appear to be sales of food prepared for immediate consumption, we determine that the COMPANY is more similar to a movie theater than a convenience store. As the COMPANY is not an exempted theater, it is a business that qualifies as a “restaurant,” and, accordingly, must collect the restaurant tax on its sales.

Nevertheless, one other issue you mentioned should be clarified. You believe that the COMPANY does not prepare, serve, or package the foods it sells and, thus, does not qualify as a restaurant. The Commission finds otherwise. First, Subsection (D) of Rule 17 provides that “prepared for immediate consumption” means any act of the retailer or vendor in either:

1. preparing, which includes heating or chilling, serving, or packaging foods or beverages of a type that are reasonably expected to be consumed immediately, or

2. providing the purchaser with the resources necessary to prepare, serve, or package foods or beverages of a type that are reasonably expected to be consumed immediately. (Emphasis added).

Accordingly, for purposes of defining a “restaurant,” preparing food for immediate consumption means more than “making” the food. It also means keeping already prepared food heated or chilled so that a customer may consume it immediately or providing a customer with the resources necessary to make the food ready for immediate consumption. The COMPANY serves items that a movie theater does, such as popcorn, fountain drinks, and hot dogs. We assume the popcorn is “popped” and hot dogs are kept warm so that the customers can consume them immediately, as there are in a movie theater. In addition, we assume the availability of fountain drinks means that the customer receives a drink that is chilled or has ice and, thus, is immediately consumable, whether the COMPANY serves the drinks themselves or provides equipment for the customers to make their own drinks. Lastly, other items, such as sandwiches and yogurt, often require refrigeration or chilling, which under Rule 17, qualifies the food as “prepared” by the COMPANY. For these reasons, the Commission finds that the COOMPANY “prepares” the food it sells for immediate consumption.

In conclusion, based on the facts presented and the assumptions made, the Commission denies the COMPANY request for an exemption from collecting the restaurant tax. Please contact us if you have any other questions.

For the Commission,

Pam Hendrickson

Commission Chair

PH/KC

01-003