May 08, 2017
From KPMG TaxWatch
A Washington State Administrative Law Judge or ALJ recently declined to dismiss sales tax assessments issued to three movie theaters. The assessments related to uncollected sales tax on sales of popcorn. Each of the theaters sold popcorn in small, medium, large, and extra-large containers and charged a flat rate for each size. Under Washington law, prepared food is subject to sales and use tax. There is an exception to the general rule for food sold without eating utensils provided by the seller and in an unheated state by weight or volume as a single item. The taxpayers argued that this exception applied to their sales of popcorn.
In addressing whether the theaters sold popcorn by weight or volume, the ALJ looked to interpretations issued by the Streamlined Sales and Use Tax Agreement (SSUTA) Governing Board of which Washington State is a member. A 2005 SSUTA Discussion Paper on “Food Definition Issues” explained that food sold by weight or volume meant that the price of the food would vary based on the weight or volume of the food product selected by the customer. Examples in guidance issued by other SSUTA states included potato salad and sliced meats sold by the pound at grocery store delis. Applying this guidance, the ALJ concluded that if the theaters sold popcorn whereby the customer scooped popcorn from a large container, and then had it weighed on a scale, and the customer paid a price for the popcorn which equaled the ounces of popcorn multiplied by a price per ounce, then there would be a sale by weight or volume. However, the theaters all sold popcorn in small, medium, large, or extra-large containers. The ALJ observed that under the theaters’ interpretation, a retailer could simply list food for sale by small, medium, or large quantities and the food would be exempt from sales and use tax. Having determined that the theaters did not meet the exception from the definition of taxable prepared food, the ALJ declined to address whether popcorn was sold in a heated or unheated state. Please contact Michele Baisler at 206-913-4117 with questions on Washington Determination 13-0291.
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