Complimentary Champagne

In a recent communication, a restaurant asked how complimentary champagne would be treated for audit purposes. The champagne would be given away one day a week as a marketing tool. The restaurant does not sell champagne, but does sell other types of wine.

The restaurant’s plan was to have the restaurant’s vendor issue a separate purchase invoice for the champagne, and the restaurant would pay sales tax on the purchase of champagne. Champagne would be given away both to customers who purchase a meal and to customers who do not purchase a meal. The restaurant would not advertise in any way that champagne is included with the purchase of a meal.

Rule 3.1001, regarding mixed beverage gross receipts tax, defines a complimentary alcoholic beverage as one served without any consideration paid to the permittee. “Consideration” includes a purchase of a meal, any other item sold with service of the beverage, an entertainment fee or an entry fee. Champagne given indiscriminately to customers who purchase and do not purchase a meal is a complimentary alcoholic beverage. Since the restaurant receives no consideration for the complimentary champagne, it should be excluded from the mixed beverage gross receipts tax base.

Written or verbal advertisements and promotions that suggest in any way champagne is included with the purchase of a meal, such as champagne brunch, champagne buffet or dinners receive complimentary champagne, is viewed as selling champagne and not as complimentary.

The restaurant must keep all purchase invoices showing sales tax paid on the complimentary champagne, as required by Tax Code Section 111.0041 and Rule 3.1001. A service check must record each individual service of complimentary champagne with the total number of complimentary services of champagne included in the restaurant’s daily summary.

*Originally published in the July edition of Tax Policy News a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1207.html

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