The SBE has been conducting a series of audits on Event Planners.  These audits usually result in substantial sales tax liability as a result of a general misunderstanding of the sales tax law.

An event planner performs non-taxable services and provides tangible property (TPP).

For a corporate sales event, for example, the event planner finds a location (usually a hotel conference room), arranges for the food and beverage, provide audio visual equipment, décor, printed materials, photography, sales premiums and gifts, signage, stages, and props.  The client will sign a contract that lists all of the goods and services to be provided.  It will include x number of meals and all of the above mentioned items.  Rarely are the elements of the contract separately stated. The hotels often contract directly with the customer for the rooms and the food and beverage services but all the billing (and oversight) is handled by the event planner.

The sales tax concerns are often overlooked and many issues come up in an audit.  Many times the event planner has paid tax on the cost of the tangible property and is unaware of any further liability.  The problem is that they are liable for the gross receipts of the tangible property they sell, not just the cost.  Now the tricky part- It’s up to the auditor to decipher how much of the event’s gross revenue is for the sale of the food and beverage, the audio/visual rental, the printing, the signage, the gifts, and premiums and the décor, and how much is for services that are not related to the sale of TPP.  If tax was paid on the cost of the TPP, credit should be given for that.  The other question that arises is, what services are related to the sale of TPP and thus taxable?  For example, if the event planner hires musicians or a DJ for entertainment that would be a non- taxable service as it does not relate to the sale of TPP.  If they hire a bartender  to provide beverages, that is a service that directly relates to the sale of TPP.

Consider This:

The event planners could save a lot of these problems by establishing themselves as agents.  As  agents, they would charge their client the exact amount they are charged plus a fee for their services.  Every vendor would be required to know that the event planner is acting as an agent for their client, and charge tax accordingly.  An attorney should be consulted to clearly establish an agency agreement.  Although the agency agreement is a possibility, some event planners would rather continue business as usual and effectively mark up their costs plus charge a fee for their services.  Understandably, there would be less price resistance this way rather than charging one large service fee to cover what was formerly disguised in the mark-up.  If the event planner operates as a seller, they should separately state the items in their contract, tax the TPP and any related services, and exempt the intangible charges such as hotel rooms, entertainment, venue rental, and the prorata portion of their event fee that doesn’t relate to the tangible property furnished.

An example of this follows:

In this estimate the food and beverage and the audio visual rental is taxable.  This amount, $27,500 is 30% of the total fee excluding the event fee.  Accordingly , 30% of the event fee or $10,500 is taxable.  The total taxable amount of $38,000 ($12,500 + $15,000 + $10,500) would be offset by any tax paid on the cost of the food and beverage and/or the equipment rental. Another possibility is actually prorating the agency fee based on time spent on each area.  It would be a good idea to review the sales tax procedures for any clients you may encounter in this business or any similar business.

On an unrelated topic, noticed that Lacerte is charging tax on remote processing fees.  This should not be taxable per regulation 1502.  I sent them the authority for not taxing these charges, but a community effort is always more effective.