REQUEST LETTER

01-028

Response: 10/22/01

COMPANY

NAME

ADDRESS

PHONE

Re: Winter Olympics Sales Tax

Dear Sir:

COMPANY will handle the food operation at the Winter Olympics. This letter is a request for clarification on the following sales tax issues:

1. The rate of sales tax to be collected

a. Is the rate the same throughout the areas the Olympics are held?

b. Is the hospitality tax included in the rate?

c. Exactly what rate of tax is to be collected at each Olympic site?

2. CITY Olympic Committee – Purchase of Food

a. Is the Committee liable for sales tax on any of its purchases?

b. If it is liable, on what purchases is it liable?

c. If the CITY Olympic Committee buys prepared food and re-sells it, what is the sales tax obligation of the Committee?

d. What is the sales tax obligation of the seller of the prepared food to the Committee?

3. Purchase of Equipment

The ORGANIZATION will obtain restaurant kitchen equipment to be used to feed the athletes at no cost to the Committee or the athletes. COMPANY will handle the feeding operation for no monetary fee. What are the sales tax implications if:

a. COMPANY buys the equipment and immediately sells it to ORGANIZATION.:

i. What are the sales tax obligations of COMPANY?

ii. What are the sales tax obligations of ORGANIZATION.?

b. ORGANIZATION. buys the equipment and pays with ORGANIZATION

c. COMPANY buys the equipment on behalf of the ORGANIZATION

i. Does COMPANY pay sales tax on the purchase?

At the end of the Olympics ORGANIZATION will give the restaurant kitchen equipment to COMPANY to compensate COMPANY for food and labor used in feeding the athletes.

d. Will COMPANY owe sales tax on this transfer of equipment?

If the answer is Yes, on what value will the sales tax be computed?

Your reply is awaited.

NAME

Tax Manager

RESPONSE LETTER

DATE

COMPANY

NAME

ADDRESS

RE: Advisory Opinion – Taxation of Food Services Relating to the DATE Winter Olympics

Dear Mr. NAME:

You have requested information concerning the taxes that COMPANY should collect on its food sales during the DATE Winter Olympics. You have also inquired whether your food sales to the ORGANIZATION are exempt and whether the restaurant equipment used by COMPANY in providing its services during the Olympics may be purchased exempt from taxation.

Rate Of Taxes.

The sales and use tax, as well as other taxes applied on taxable sales, varies in Utah and depends upon the political jurisdiction in which the sale is made. Enclosed is the Tax Commission’s latest Tax Rate Chart, which is effective as of October 1, 2001. This chart is updated quarterly and shows the tax rates applicable on sales occurring in the various Utah cities and counties. A retailer may use this chart to determine the correct combination of taxes to charge on a sale in any particular location.

Restaurants should collect three different taxes on its sales, which are identified on the Tax Rate Chart as: (1) the “combined sales rate” from the Sales & Use Tax Return section; (2) the tourism-restaurant tax (“FG”) from the Tourism Section; and (3) the resort revenue tax (“RR”) from the Resort section. For example, if COMPANY sells food in any area of COUNTY (other than CITY), the combined tax rate that it should apply would be 7.6% (6.6% sales and use tax and 1% tourism-restaurant tax). Similarly, if a sale occurs in CITY in COUNTY, the combined tax rate would be 8.35% (6.35% sales and use tax, 1% tourism-restaurant tax, and 1% resort revenue tax). Rates for these and any other areas would be applicable for the current quarter, from October 1, 2001 to December 31, 2001.

However, most of your sales will occur in the quarter beginning DATE. It is possible that some tax rates may change between this quarter and next. To ensure you apply the correct tax rates on sales occurring during the Olympic Games, you may view any changes at our website, www.tax.ex.state.ut.us, or contact EMPLOYEE at the Tax Commission at (PHONE after DATE, to determine if the rates in the enclosed Tax Rate Chart will remain unchanged for the next quarter.

Sales of Food to or by ORGANIZATION.

ORGANIZATION is a section 501(c)(3) entity and, as such, is considered a charitable institution for purposes of the Utah Sales and Use Tax Act. Utah Code Ann. §59-12-104(8) provides that sales to a charitable institution are exempt from taxation, with certain exceptions. Accordingly, ORGANIZATION is exempt from taxation when it purchases food from COMPANY for its own consumption, since food is not specified as an exception from the exemption.

ORGANIZATION may also purchase food from COMPANY tax-free that it plans to resell using the resale exemption. However, ORGANIZATION subsequent sales of meals are taxable unless the meals are not available to the general public. See Utah Code Ann. §§59-12-104(12)(a)(i)(B), 59-12-104.1(2)(b)(iii)(B).

In either situation where it is selling food to SLOC tax-free, COMPANY is required under Utah Admin. Rule R865-19S-23 to keep records verifying the nontaxable status of such sales. COMPANY should retain an exemption certificate (enclosed Form TC-721) that is completed by ORGANIZATION and which indicates the applicable exemption.

Taxation of Restaurant Equipment

ORGANIZATION must pay sales tax on any equipment it purchases to provide its food services. If, instead, COMPANY purchases the equipment for resale to ORGANIZATION, it may purchase the equipment tax-free upon completing an exemption certificate and presenting it at the time of purchase.

ORGANIZATION purchase of restaurant equipment to provide food to athletes and its subsequent disposal of the equipment after the Games would be considered sales made in the conduct of ORGANIZATION charitable functions or activities in organizing and conducting the Olympic Games. See Utah Code Ann. §59-12-104.1. Accordingly, any such sale would be exempt from sales and use tax.

Furthermore, should ORGANIZATION “give” the equipment to COMPANY in exchange for providing food services to the athletes, we would consider the transaction an exempt sale. Although the transaction would be considered an exchange of valuable consideration, restaurant equipment is not an item on whose sale ORGANIZATION must collect sales tax under Section 59-12-104(8).

ORGANIZATION may, however, be liable for sales and use tax if it purchases the equipment on “behalf of” ORGANIZATION unless certain criteria are met. Although no current statute or rule specifically addresses only the purchase of tangible personal property on behalf of a charitable institution, Utah Admin. Rule R865-19S-58(B)(4) (“Rule 58”) does address how tangible personal property may be purchased tax-free for such an institution when those materials are converted to real property. Rule 58 provides that:

(B)(4) Sales of materials are considered made to religious or charitable institutions and, therefore, exempt from sales tax, if:

a) the religious or charitable institution makes payment for the materials directly to the vendor; or

b) the materials are purchased on behalf of the religious or charitable institution.

(i) Materials are purchased on behalf of the religious or charitable institution if the materials are clearly identified and segregated and installed or converted to real property owned by the religious or charitable institution.

While the rule contemplates the purchase of tangible personal property that is installed to real property, the Commission will also consider the purchase of tangible personal property that remains tangible personal property to be exempt when made on behalf of a charitable institution, but only if that institution makes payment directly to the vendor. Therefore, under this rule, COMPANY may purchase the equipment tax-free on behalf of ORGANIZATION if the equipment is clearly identified and segregated and it becomes part of realty owned by ORGANIZATION. Otherwise, COMPANY may only purchase the equipment tax-free on behalf of ORGANIZATION if ORGANIZATION if the vendor pays directly.

Should you have any other questions, please contact us.

For the Commission,

EMPLOYEE

Commissioner

enc.

MBJ/KC

01-028