Recently New York has made it a priority to perform sales tax audits on many event planning businesses. Event planning is a broad term that can encompass multiple services ranging anywhere from providing guidance and consulting for an event, to planning and managing every detail of an event such as catering, set design and booking entertainment.
Many times these services are co-mingled and can create issues for determining what receipts are subject to New York sales tax. The result of such errors can be large assessments, interest, and penalties. To understand this issue better, we need to identify these sales tax pitfalls an event planner can fall into that would lead to this scenario.
Sales Tax on Catering Services
Since catering services are considered taxable in New York, event planners should be asking themselves if a portion of the services they provide can be labeled as catering. An event planner does not have to prepare the food; they can merely purchase the food and resell it at the event or bill their client for the food.
For example, an event planner could be subject to sales tax if, during a contracted event, they purchase food for the event and rebills the client for the food. A service that may seem innocuous for an event planner could also be the purchase of bottled beverages for an event and bill their client for those items. For a detailed discussion on this issue, you can refer to NYS TB-ST-110.
Sales Tax Audit Strategy
During a recent New York sales tax audit of a small event planning business, the auditor requested numerous pieces of documentation to try to prove that our client was performing catering services. This included copies of the invoices, contracts and purchase receipts.
The key fact pattern New York was trying to prove was whether the event planner purchased the food and directly resold it to the client or was significantly involved in the purchasing of the food. If New York could prove that the event planner was involved in the purchase of the food, then the entire receipt for the event planning services would have been taxable. The state goes a step further in redefining event planners in NYS TB-ST-110 which explicitly defines event coordinators as a caterer “when they arrange for and bill for food, beverages, and other services at an event.”
In our case, our client was not involved in the purchase of the food. All the invoices and contracts clearly stated that the food was to be purchased directly by the event planners clients.
However, as a result of the audit we have identified several key points event planners should consider when creating an invoice or contract for an event:
- Clearly state in your contract that “food, beverages, and other services at an event” are not arranged by the event planner
- Do not bill or invoice for “food, beverages, and other services” that may be taxable
- Referral fees from food and beverage vendors should not pose a problem
Like any good event, preparation is key. Event planners should carefully review their invoices and contracts to ensure that New York sales tax will not be due on their charges.