October 14, 2014

NOTE: The information in this post was updated on October 13, 2015. Read the update.

Many hotels, clubs, restaurants and similar establishments provide complimentary food, drinks and snacks to guests in a variety of contexts. However, the potential sales and use tax liabilities associated with complimentary meals and drinks are often overlooked. A recently published administrative ruling from the Washington Department of Revenue’s appeals division highlights this issue and provides useful guidance to businesses that provide complimentary food and beverages to their guests.1

On audit, the Department of Revenue’s audit division asserted use tax on food and beverage purchases by a hotel that were used in providing complimentary meals to hotel guests. The assessment was based on a regulation which provides that all purchases of tangible personal property for use in providing “lodging and related services” are retail sales. In Det. No. 13-0234, the appeals division agreed that this rule applied and found that, absent an exemption, the food and beverages purchased for use in providing complimentary meals to guests would be subject to retail sales tax. However, under Washington law, food and food ingredients are exempt from retail sales tax and use tax.

In order to understand the scope of this exemption, it is critical to know what items are considered “food and food ingredients” by the exemption statute. The following is a brief summary of this definition.

Exempt food and food ingredients:

  • Substances, whether liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value.
  • Beverages containing: milk or milk products; soy, rice, or similar milk substitutes; or greater that fifty percent of vegetable or fruit juice by volume.

Nonexempt items:

  • Alcoholic beverages (beverages containing 1-½ % or more of alcohol).
  • Soft drinks (nonalcoholic beverages that contain natural or artificial sweeteners, and are not exempt beverages as described above).
  • Prepared food, which includes food sold in a heated state, and food sold with eating utensils, napkins, straws, etc.
  • Dietary supplements that are not represented as conventional food and not represented for use as a sole item of a meal or diet.
  • Marijuana or marijuana-infused products.

The appeals division held that use tax was due only on the nonexempt food items purchased to be provided as part of a complimentary meal. Hotels that prepare food specifically for complimentary meals are deemed to be the consumer of the food they purchase. Thus, purchases of exempt food items do not become subject to use tax when served by a hotel or restaurant as part of a complimentary meal or similar service.

Although this appeals decision specifically addressed complimentary meals provided by hotels, it appears that the holding would apply more broadly to clubs, restaurants and others within the general hospitality industry. Thus, any such business should consider whether it is properly paying sales tax or accruing and remitting use tax on purchases of nonexempt food items, and properly claiming exemption on items within the definition of food and food ingredients. If it is determined upon review that sales or use tax has been paid in error on exempt food items, then a refund of the previously over reported amounts may be requested from the Department of Revenue. Contact Clark Nuber or your tax provider for assistance in reviewing your activities as they relate to this exemption or any other applicable state tax law.

1It is important to differentiate between meals provided to guests and those provided to employees. Effective July 1, 2011, meals provided without specific charge to employees are exempt from Washington sales and use tax and B&O tax. The focus of this article is on complimentary meals for guests and other nonemployees only.


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