99-026

Response August 23, 2000

REQUEST LETTER

99‑026

March 11, 1999

RE: Advisory Opinion Request

Dear Mr. Chapman:

I request a written response on how some tax issues should be handled. Your prompt response would be appreciated.

I am considering the sales of food (catering), rental of party supplies, games, and/or contracting to provide a room for the party (at hotel or restaurant), in addition to entertainment I currently provide to businesses (for company parties).

Situation 1: If I sell entertainment and food catering, what parts of my billings are subject to sales tax? I understand if I do not itemize sales, the entire charge would be subject to sales tax. However, I feel it would be unfair competition if I would be required to charge sales tax on the entertainment portion the invoice (if listed separately). For example, if a catering company bid on providing food for a company party (taxable sale), and an entertainer bid (exempt from sales tax (service)) on the same party; it would be unfair if I had to charge sales tax on my entire package price for the same services.

For example would it be correct for me to invoice:

Entertainment 500.00

Food ($8.95 x 200 people) 1,790.00

Sales Tax on food 113.67

Tourism Tax on food 7.90

Total Charge $2,421.57

If the entire amount is subject to sales tax, how much of the amount is subject to tourism tax?

Situation 2: Is it true that if I charge for performing (for a company summer party) or providing

entertainment (other performers subcontracted out) no sales tax is due? The billing is to the company for the entertainment.

Situation 3: If I schedule a room for the entertainment what charges are taxable? What taxes are due? For example is this correct:

Entertainment 500.00

Banquet Room 700.00

Sales Tax on Room 44.45

Total Charge $1,244.45

Or is the total charge subject to sales tax as an admission? Remember I am selling this to a company for a party given to its employees. The employees come to the party free of charge.

Situation 4: If an admission is charged by the business (hiring my services) to employees, then would my services be exempt for resale (assuming I receive a completed sales tax exemption certificate)?

Situation 5: Rentals of chairs, tables, games and equipment, by me to a company, would be subject to sales tax. What about the rental of a balloon slide that requires an operator to set it up and supervise its usage? Would this be a sales tax exempt rental (rental with an operator) or considered an exempt service? If I provided carnival midway type games and ran them would the sale be an exempt service? If I rented the games to the company, to be run by their employees, would the rental transaction be taxable? What about a balloon climbing wall (rental with an operator)? The person climbing is placed in harness, which is attached to ropes (watched or held by operator), as person attempts to climb a balloon wall. If the person climbing the wall slips and falls the ropes and harness stop their fall. Is this rental of this equipment to a business (for a company party) exempt because it is rented with an operator?

Or is the charge to the company considered to be a taxable admission charge such as that for an amusement park ride?

RESPONSE LETTER

August 23, 2000

NAME

ADDRESS

RE: Advisory Opinion Request - Sales Tax on Entertainment Charges

Dear Sir or Madam,

You have requested an advisory opinion concerning the application of sales tax on various charges you make in your entertainment business. Applicable to your questions is Utah Code Ann. '59-12-103(1), which provides that a sales and use tax is levied on the purchaser for the amount paid or charged for the following:

(e) meals sold;

(f) admission or user fees for ... shows of any type or nature, . . . carnivals, amusement parks, amusement rides, circuses, menageries, fairs, ... water slides, . . . or any other amusement, entertainment, recreation, exhibition, cultural, or athletic activity; . . . [and]

(k) leases and rentals of tangible personal property[.]

In addition, subsection (A) of Utah Admin. Rule R865‑19S‑33 (ARule 33") provides that Aadmission," pursuant to section 103(1)(f), Ameans the right or privilege to enter into a place.@

You are correct that charges for providing entertainment alone is not subject to taxation because it is a nontaxable service. However, services that are an essential part of a charge where that charge itself is subject to sales tax are generally considered a part of that taxable charge and cannot separately be excluded from taxation. For example, the cost of a ticket to see a play would be fully taxable as an admission. The cost for that ticket could not be itemized to separate the charge for the right to a seat in the auditorium from the charge for the actors= acting services, with sales tax applied to the former but not the latter. Given these guidelines, we address the situations you describe in your letter as follows.

Situation 1. In this situation, you would supply entertainment and food for a client. The client would supply the room or building where the food would be served and the entertainment performed. Under these circumstances, your charges would not reflect charges for the admission to an entertainment event pursuant to section 103(1)(f) because no Aright or privilege to enter into a place,@ in accordance with section (A) of Rule 33, is conveyed. Accordingly, the tax consequences of your charges may be considered individually.

The charge for the food catering would be considered a sale of meals and would be subject to taxation pursuant to Section 103(1)(e). The tax rate you would apply on your charges for food or meals would consist not only of the sales tax rate, but also the tourism tax rate (in most jurisdictions) and the resort tax rate (in a handful of jurisdictions, such as Park City and the Town of Alta). Tables are available from the Tax Commission that show what taxes are due in each of the specific jurisdictions.

The entertainment provided is a nontaxable service, and, accordingly, no sales tax is due on this charge. However, if you charge one amount to your client that includes both the nontaxable entertainment charge and some taxable charge, such as for food catering, the entire amount charged is taxable. Therefore, the entertainment charge should be stated separately to ensure that the entire food and entertainment charge is not assessed sales tax.

Situation 2. As stated earlier, the charge for entertainment alone would be a nontaxable charge for services.

Situation 3. In this situation, a company is purchasing the entertainment and the right to use the room from you, then allowing its employees to enter the room and enjoy the entertainment free of charge. Under these circumstances, your charges to the company for both the room and the entertainment are tax-free. Utah Admin. Rule R865-19S-33(D) (ARule 33") provides that:

AWhere a person or organization acquires the sole right to use any place or the right to dispose of all of the admissions to any place for one or more occasions, the amount paid is not subject to the tax on admissions. Such a transaction constitutes a rental of the entire place and if the person or organization in turn sells admissions, sales tax applies to amounts paid for such admissions.

As the company is acquiring from you the sole right to use the place (in this case, a room), you will not be considered a seller of admissions. Accordingly, your charges are not considered in the aggregate as a taxable admission. Instead, your charges are considered separately to determine if they are taxable. Both the rental of a room for a party and the charge for entertainment under these circumstances are nontaxable transactions. You would not collect sales tax on either charge in this situation.

Situation 4. This situation would be the same as discussed in Situation 3 above, except your client, the company, would not be providing the event to its employees free of charge. Instead, the company would charge its employees to attend the company event. Section (D) of Rule 33 again provides that your charges to the company do not constitute a taxable admission. As in Situation 3, the company is acquiring from you the sole right to use the room. Accordingly, you are not the seller of a taxable admission. Instead, your charges for the room and the entertainment are considered separately for taxation purposes and, as in Situation 3, are nontaxable. However, Section (D) of Rule 33 would require the company to apply sales tax on the price it charges its employees to attend the event, if the event is one for which admittance is considered a taxable admission.

Situation 5. You ask a number of questions concerning the application of sales tax on the rental of tangible personal property, specifically balloon slides, balloon walls, and carnival midway-type games. Pursuant to section 103(1)(k), subsection (B) of Utah Admin. Rule R865-19S-32 (ARule 32") imposes a sales tax on the lease or rental price of tangible personal property when the Alessee has the right to the possession, operation, or use of the tangible personal property[.]@ However, subsection (D) of Rule 32 sets forth that when the rental charge includes a person to operate the rented property, the lessee has not acquired the right to possess, operate, or use the property for taxation purposes, as follows:

Persons who furnish an operator with the rental equipment and charge for the use of the equipment and personnel are regarded as the consumers of the property leased or rented. An example of this type of rental is the furnishing of a crane and its operating personnel to a building erector. Sales or use tax then applies to the purchase of the equipment by the lessor rather than to the rental revenue.

Accordingly, you would charge sales tax on all rentals of balloon slides, balloon walls, and carnival midway-type games, even if you provide a person to set up and/or take down that equipment. However, if your charges include providing a person to operate the rented property, your rental charges are nontaxable.

You may rent these properties to a company which then charges its employees a taxable admission charge to use the rented properties. However, the company is not entitled to use the resale exemption to rent the properties tax-free from you. In this situation, your rental of tangible personal property without an operator remains a taxable transaction. As the company=s employees are purchasing an admission to an activity or event, they would not be considered the ultimate consumers of the equipment rental. Your client, the company, is considered the party who Aconsumes@ the taxable rental and, accordingly, is not entitled to rent the property tax-free using the resale exemption.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner