Meal Tax (Individual or Partnership) Bond - City of Portsmouth, VA in Virginia

Brief Summary

Portsmouth does not publish one number for this bond. The Commissioner of the Revenue calculates it from your own figures, and for a new food establishment that means the meal tax on the estimated gross receipts you put on your business license application for the first quarter. The floor is $1,000 and there is no ceiling in the ordinance. Knowing that before you file the license application is worth real money, because the estimate you write there sets the bond you have to buy.

Portsmouth City Code section 35-417 requires a bond with corporate surety from every new food establishment, and from any existing establishment with an unsatisfactory reporting or remittance record. The City of Portsmouth is the obligee and the bond has to be in a form the city attorney finds satisfactory. It is posted annually. For a new establishment the amount equals the meal taxes on the estimated gross receipts for the first quarter of operation shown on the business license application. For an existing establishment it is not less than the meal taxes collected in the highest quarter of the previous tax year. Neither bond may be written for less than $1,000.

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How to Apply for a Meal Tax (Individual or Partnership) Bond:

• Work out which subsection applies to you: new establishment under section 35-417(a), or existing establishment with an unsatisfactory record under section 35-417(b).
• For a new establishment, have the first quarter estimated gross receipts figure from your business license application, since the bond is the meal tax on that number.
• For an existing establishment, pull the meal taxes you actually collected in the highest quarter of the previous tax year.
• Remember the $1,000 floor. No bond is written below it.
• Have the exact legal name of the individual owner or the partnership as it appears on the business license.
• Owner or partner name, home address and Social Security number for the credit review.
• Complete the bond application and review the quoted premium.
• File the executed bond with the Commissioner of the Revenue and plan on renewing it every year the requirement applies.

Detailed Information About the Virginia Meal Tax (Individual or Partnership) Bond:

The amount is a formula, not a figure

Section 35-417(a) covers new food establishments. The bond equals the sum total of the meal taxes to be collected on estimated gross receipts for the first quarter of operation as shown on the application for business license. With the tax at 7.5 percent under section 35-407, a first quarter estimate of $200,000 in taxable sales produces a $15,000 bond. Section 35-417(b) covers existing establishments with unsatisfactory reporting or remittance records, and sets the bond at not less than the meal taxes collected during the highest quarter of the previous tax year. Both subsections end the same way. No such bond shall be issued or accepted in an amount less than $1,000.00.

An established restaurant in good standing posts nothing

This is the part that gets missed. The ordinance splits food establishments into two groups. New ones bond because the city has no history with them. Existing ones bond only if their reporting or remittance record is unsatisfactory. File and remit on time and the bond requirement does not reach you. That is not a grandfather clause tied to a date, it is a performance test you can fail at any point, which also means an established operator who slips into late filing can be told to post a bond on the prior year's biggest quarter.

It is an annual filing

Section 35-417 says post annually, in both subsections. This is not a one time item you clear at opening. Budget for it as a recurring cost while the requirement applies to you.

A letter of credit works instead

Section 35-417(c) lets the Commissioner of the Revenue accept an irrevocable letter of credit in place of the bond, provided the city attorney reviews and approves it. A letter of credit ties up bank capacity, so compare it against the bond premium rather than assuming it is the cheaper route.

What the bond is actually guaranteeing

The tax is 7.5 percent on the amount paid for meals purchased in or from any food establishment, whether prepared there or not and whether consumed on the premises or not. Section 35-409(b) says the taxes collected are deemed held in trust by the person required to collect them until they are remitted. The bond guarantees faithful performance of that trust duty. Reports and remittances are due on or before the 20th of each month for the previous month's collections under section 35-410.

What happens when a remittance is late

Section 35-413 adds a penalty of up to ten percent of the tax for the first month past due and five percent for each month after, capped at 25 percent or $10.00, whichever is greater, with interest at ten percent per year running from the day after the due date. A false or fraudulent return with intent to defraud the city carries a 50 percent penalty. Section 35-418 makes a person who willfully fails to pay or account for the tax liable for a penalty equal to the tax itself, and that reaches anyone who knew about the failure and had authority to prevent it.

Who is inside the definition, which is wider than restaurants

Section 35-406 defines a food establishment to include a restaurant, dining room, grill, coffeeshop, cafeteria, cafe, snack bar, lunch counter, convenience store, theater, delicatessen, confectionery, bakery, drugstore, ice cream or yogurt shop, lunch wagon or truck, pushcart or other mobile facility, public or private club, resort, bar and lounge. If you sell prepared food in Portsmouth, you are almost certainly in.

Sales that are not taxed

Section 35-407.1 exempts factory prepackaged candy, gum and nuts. Sold exclusively for off premises consumption, it also exempts donuts, ice cream, crackers, chips and cookies and similar factory prepackaged items, food sold in bulk such as a whole cake or a gallon of ice cream, and alcoholic and nonalcoholic beverages in factory sealed containers. Catered or delivered food does not count as a bulk sale. A grocery store, supermarket or convenience store is outside the tax except for the portion designated as a delicatessen or for the sale of prepared food and beverages. Other exclusions cover food bought with USDA food coupons or WIC drafts, meals for employees at no charge, day care centers and schools, purchases paid directly by the Commonwealth or the United States, hospital and nursing home meals for patients and residents, meals at concession prices for elderly, infirm, blind, handicapped or needy persons, fundraising sales by a nonprofit or church no more than three times a calendar year, and vending machine sales. Discretionary tips are not taxed, but a gratuity or service charge the seller adds and requires is part of the selling price and is taxed.

Eligibility and Requirements for a Virginia Meal Tax (Individual or Partnership) Bond:

• A corporate surety, as section 35-417 requires a bond with corporate surety.
• A bond form the city attorney deems satisfactory. The Commissioner of the Revenue is authorized under section 35-417(c) to develop and issue the forms, so request the individual or partnership version from that office.
• City of Portsmouth named as obligee.
• Principal name matching the business license exactly, in the individual owner's or the partnership's name.
• Bond amount at least equal to the calculated figure and never less than $1,000.
• Annual renewal while the requirement applies.
• Owner credit review. On a calculated bond the size of the penal sum drives underwriting more than anything else.

Virginia Meal Tax (Individual or Partnership) Bond FAQs:

Official and Additional Resources for the Virginia Meal Tax (Individual or Partnership) Bond: