Update: Washington sales and use tax on complimentary employee meals

By Joe Haberzetle, JD, LLM

Seemingly every year the Washington legislature makes a number of changes to the state’s tax laws, and 2015 was no different in this regard. Since 2011, Washington law has provided an exemption from Business and Occupation (B&O) tax and sales/use tax for complimentary meals provided by restaurants to employees. However, the 2015 legislature revised this exemption to significantly limit which employees are eligible.

Under the 2011 law, restaurant operators who provide complimentary meals to employees without a specific charge are allowed an exemption from sales tax, use tax, and B&O tax on those meals. Within this statute, the term “restaurant” is defined as an establishment open to the public where food and beverages are regularly sold to the public for immediate (but not necessarily on-site) consumption. The 2015 legislation leaves this definition unchanged, but it limits the exemption to only those employees who work specifically in the restaurant itself, eliminating the exemption for workers in other parts of an organization or facility.

For example, if a public country club that has a golf course and a grill provides all employees of the country club complimentary meals, only the employees operating the grill qualify for the exemption. If complimentary meals are provided to groundskeepers, caddies and others who work on the golf course, the country club would be subject to use tax on the value of those meals. Whether this exemption is available on meals provided to the administrative staff of the country club that assist in the managing of the grill is unclear. The Washington Department of Revenue released a special notice effective July 24, 2015, confirming that the exemption only applies to meals provided to “restaurant employees” for free.

In our experience, there can be substantial variability in how different Department of Revenue auditors approach an issue, such as employee meals, during an audit. That said, taxpayers will put themselves in the strongest position if their records differentiate meals provided to restaurant employees from those provided to other workers. Absent such records, an auditor could seek to tax all complimentary meals provided to both restaurant and non-restaurant employees, since exemptions are strictly construed in favor of taxation where any uncertainty as to eligibility exists.

© Clark Nuber PS, 2015.  All Rights Reserved