The Virginia Tax Commissioner recently released a ruling that charges for children's birthday party packages were subject to tax.
The taxpayer operated a children's amusement center that had inflatable structures for children to play on. The taxpayer sold children's party packages. These packages included a private party room, a party coordinator's services, pizza, cake, drinks, invitations, disposable utensils and plates, a t-shirt for the birthday child, and play time on the structures. The party coordinator set up the party, greeted the hosts and guests, coordinated party games, cleaned up, and helped carry presents.
Virginia taxes sales of tangible personal property, including sales of prepared food. The sales price of tangible personal property is the amount subject to tax. The "sales price" is "the total amount for which tangible personal property" is sold. Although admissions are not generally subject to tax, a "cover charge" that entitles the customer to food, drinks, or other tangible property is taxable as the sales price of tangible personal property.
The Commissioner determined that the charge for the packages was taxable as the sales price of tangible personal property. Because the charge included the provision of taxable food and beverages, it did not matter whether the primary purpose of the sale was the taxable items. The charge for the party package was therefore subject to tax.