Court Ruling Offers a Round of Tax Relief for Ohio Restaurant and Bar Owners
By Mark Thomas, Supervisor, Tax & Business Services
As many restaurant and bar owners know, the state of Ohio has long held that the maintenance of beer tap systems by removing particulates from the beer lines is a taxable service. However, there is cause for owners to celebrate since they are no longer required to pay sales tax on this service.
The Ohio Supreme Court ruled on December 27, 2018 that the maintenance of beer tap systems does not qualify as a building maintenance and janitorial service. In other words, this service is not taxable for restaurants/bars operating in Ohio.
Beer lines used in a draught beer system develop a build-up of bacteria, yeast and other undesirable particulates over time. Great Lakes Bar Control Inc., a Toledo-based company, performs the service of removing these particulates by using chemicals and vacuum pumps, and restores these systems in good working order. This maintenance also improves the quality of the beer taste by maintaining the systems.
The Ohio Department of Taxation (ODT) performed an audit on Great Lakes Bar Control, and the tax commissioner concluded that Great Lakes was performing a taxable building maintenance and janitorial service, which is defined as “cleaning the interior or exterior of a building and any tangible personal property located therein or thereon.”
The Ohio Board of Tax Appeals reversed the commissioner’s Final Determination that this service was more than just cleaning tangible personal property, as it was more of a maintenance service to keep the equipment in a state of operating condition.
Supreme Court Ruling
The Ohio Supreme Court rejected the commissioner’s appeal and agreed with the Ohio Board of Tax Appeals by stating that “the beer-line service does not fit the plain meaning of “cleaning” in the context of providing a “janitorial service.”
This same methodology for maintaining other items in bars and restaurants can be questioned. Ohio taxes services of “cleaning” grease traps, which hold used cooking oil for disposal. Companies will drain the oil from the grease traps for proper disposal. Ohio considers this as a building maintenance and janitorial service. However, we believe that Ohio will limit this exemption to the maintenance of beer tap systems and will continue to tax the removal of oil from grease traps until a customer and/or supplier of the service challenges this tax in court.
There is an opportunity for a refund claim if you have paid sales tax on the service of “cleaning” your draft beer system over the past four years.
If you have any questions concerning this change, want to discuss a potential refund claim or have other questions for our State and Local Tax Services Group, please contact email Mark Thomas.