Courts battle over wholesale or retail sales to fast food chains

wholesale or retail sales

wholesale or retail sales

Are disposable utensils sales tax exempt for fast food restaurants?

cutlery

Are disposable utensils considered
wholesale or retail sales when sold to fast food restaurants for use with prepared meals? Alabama courts found the sale was a retail transaction and later reversed the decision finding for the wholesale, tax free argument.

Sales tax is usually assessed at the retail level. Most states exempt wholesale transactions from sales tax. But distinguishing retail from wholesale can be problematic. An Alabama appeals court recently had to decide whether the sale of certain supplies to a chain restaurant constituted a final, retail sale or merely a wholesale transaction exempt from tax.

Kelly’s Food Concepts is a restaurant supplier based in Selma, Alabama. Its customers include popular national chains like KFC and Popeye’s. Kelly’s sells items including plastic utensils, napkins and straws to these restaurants.

In 2011, the Alabama Department of Revenue audited Kelly’s and determined the company failed to collect state and local sales taxes on the sale of these supplies. Kelly’s argued these were wholesale transactions exempt under state law. But in 2012, Bill Thompson, the department’s chief administrative law judge, said Kelly’s was incorrect. As he saw it, the restaurants did not “resell” the utensils or napkins to their customers, but rather provided them free with the purchase of food. Relying on a 1984 decision by New York’s highest appeals court, Thompson said only items necessary to package the food should be considered part of the sale. Furthermore, under a prior Alabama appeals court decision, additional items like utensils must be factored into the price of the food. Thompson said Kelly’s presented no such evidence that was the case here; therefore it was liable for uncollected retail sales taxes on its sales of utensils, napkins and straws.

An Alabama Circuit Court judge later reversed Thompson’s decision and held “the purpose of the sale of cutlery and tableware … to the restaurants was for the restaurants to include the items with food and drink the restaurants sold to their customers.” These were, in fact, wholesale transactions not subject to sales tax. The department of revenue appealed this decision.

On June 20 of this year, the Alabama Court of Civil Appeals upheldthe circuit judge’s decision. Presiding Judge William C. Thompson, writing for a unanimous court, said when a restaurant sells “prepared food” to the public, that includes any cutlery or tableware. They are “critical elements of the food and drink items sold by the fast-food restaurants to their customers, and, thus, [Kelly’s], as a wholesaler, is neither liable for nor required to collect sales tax from the fast-food restaurants.” The sales tax is properly collected by the restaurant when the customer buys a meal.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

The basics of exemption certificate validity periods

As a vendor, there are a number of times when you can make sales without charging sales tax. Before you can make these transactions, you need to have a valid exemption certificate from the purchaser. Each state has different rules for the validity periods of its exemption certificates. It’s your responsibility to keep track of these rules to avoid having your exemption certificates expire.

Types of exempt sales

Each state exempts different types of transactions from sales taxes. Generally, states waive sales taxes when the purchaser plans on reselling the item; the state will just collect taxes on this later sale.

Each state also exempts taxes on various categories of purchases. It is common to see purchases for agricultural, construction, or manufacturing purposes have eligibility for a sales tax exemption. Lastly, certain organizations, like non-profits, are also eligible to make tax-exempt purchases. Each category of exemption uses a different exemption certificate that you need to keep on file.

Renewing

Scheduling the renewal of an exemption certificate can be quite confusing. Some states set a definite expiration date for their exemption certificates. For example, in Illinois and Nevada, a certificate expires in five years. This makes renewing fairly straightforward, just follow the timeline. Other states list a specific event that would cause an exemption certificate to expire. In Tennessee, an exemption certificate is valid until a business changes its status or character.
Where exemption certificates start to get complicated is when they don’t have a set date or situation that causes the certificate to expire. Since most states have the ability to revoke certificates at their discretion, it’s important to have a system to store and update your certificates regularly.

When state regulation is vague and doesn’t tell you specifically what to do, you generally need to make a judgment call. You need to decide how frequently to renew your certificates. The more often you renew, the better prepared you would be for an audit.

Tracking exemption certificate validity periods

If you make tax-exempt sales, you must keep your records up-to-date for all your exemption certificates. Be sure to keep track of every customer that uses an exemption certificate and list whether their certificate has a definite expiration date. For states that have a set expiration date, make sure to renew by that time. For states that don’t require a set expiration date, set a renewal date according to the schedule you decided was appropriate.

Keeping track of your exemption certificate validity periods is a bit of a hassle, but you’ll be thankful you did when your next audit comes around. By maintaining accurate records, you’ll be able to continue making tax-exempt sales without running into problems.

Wisconsin contemplates sales tax exemption holidays

Wisconsin sales tax exemption

Wisconsin sales tax exemption

Wisconsin lawmakers have proposed two different sales tax holidays for state residents.

Rep. Chad Weininger of Green Bay and Sen. Rick Gudex of Fond du Lac circulated a bill as of February seeking co-sponsors of the measure that would waive sales taxes two weekends of the year.

The August sales tax holiday would apply to certain school-related items including clothing up to $75, a computer up to $2,000, school computer supplies up to $250, school instructional materials and various other school supplies.

The November sales tax exemption would apply to Energy Star products.

Alabama announces Severe Weather Preparedness Sales Tax Holiday

Preparedness Sales Tax

Preparedness Sales Tax

Preparedness Sales Tax holiday

Alabama residents are being encouraged to stock up on hurricane and tornado disaster supplies with a repeal on state sales tax between Feb. 22 – 24, 2013.

Alabama has announced dates for its second annual Severe Weather Preparedness Sales Tax Holiday. It will be held Friday, Feb. 22, 2013, through Sunday, Feb. 24, 2013 during which time Alabamians are encouraged to stock up on supplies to protect their homes and businesses during the tornado and hurricane season.

Items such as batteries, tarps, plywood, weather radios and generators will be exempt from the state sales tax during this time. Some local governments will also suspend sales tax, but not all municipalities have elected to participate. Local governments have until Jan. 22, 2013 to notify the Alabama Department of Revenue if they choose to participate in the sales tax holiday. The city and counties will be listed on the ADOR web site.

Sunscreen exemption helps broiling Texans

Sunscreen exemption

Sunscreen exemption

Texas sunscreen sales tax exemption

The Texas Comptroller of Public Accounts would like to remind all retailers that the sunscreen exemption takes effect for sales and use tax as of June 18, 2012.

The timing coincides with an FDA ruling establishing labeling and testing requirements for over-the-counter sunscreen products.

For more information, check out Sunsetting the Sales Tax on Sunscreen.

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