Jul 18, 2016
From KPMG TaxWatch
Recently, the Alabama Tax Tribunal concluded that a restaurant intermediary was not liable for sales tax on the delivery fees charged to customers. The taxpayer’s website allowed customers to order food items from various local restaurants. After the taxpayer forwarded a customer’s order to the selected restaurant, the restaurant prepared the ordered food. Independent contractors hired by the taxpayer picked the food up from the restaurant and delivered it to the customer. Any issues with the quality of the food order were handled by the restaurant. The price for the food was established by the restaurant, and the taxpayer charged a flat delivery fee for each order. Most customers paid via credit card through the taxpayer’s website. Once a week, the taxpayer remitted the net food receipts and sales tax collected to participating restaurants, retaining the delivery fee plus a negotiated percentage of the food receipts. On audit, the Department took the position that the taxpayer was purchasing the food from the restaurants and reselling it to customers. If this was the correct characterization of the transactions, the taxpayer was liable for sales tax on the food and the delivery fees. After the Department assessed the taxpayer sales tax on the delivery fees, the taxpayer appealed.
The Tax Tribunal observed at the outset that if the restaurants had delivered the food to customers, either themselves or using independent contractors, the delivery charges would clearly have been taxable. However, in the instant case, the taxpayer, not the restaurants, arranged for delivery of the food. The Tribunal noted that there were multiple ways to view these transactions. First, as argued by the Department, they could be viewed as transactions in which the taxpayer purchased the food from the restaurants and resold it to customers. Second, it could be argued that the taxpayer acted as a de facto agent for the restaurants. In that case, the restaurants would be required to remit sales tax on both the food and delivery charges. Third, the situation could be viewed as if the taxpayer was providing an independent marketing and delivery service. In that case, the delivery charges would be nontaxable. The Tax Tribunal determined that the Department’s interpretation was untenable. If the taxpayer was reselling the food, the restaurants would not be responsible ensuring the quality of food orders. Under the terms of the agreement between the taxpayer and restaurants, the restaurants were ultimately responsible for preparing food to the customer’s satisfaction. Furthermore, the restaurant set the menu prices and ultimately received the customer’s payment for food (minus the taxpayer’s fees). The Tribunal determined that it need not decide whether the second or third scenario was a more accurate interpretation of the facts because, under either instance, the taxpayer would not be liable for sales tax on the delivery fees. For more information on Crimson 2 Go v. Dep’t of Revenue, please contact Scott Jackson at 404-614-8688.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.