Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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550.0000 TAXABLE SALES OF FOOD PRODUCTS—Regulation 1603

Annotation 550.0827.725


550.0827.725 Food Catering. A caterer contracts with various employers specifying that the caterer will provide food service and will operate executive dining facilities and cafeterias at the employers' business locations. The operations provided for a subsidy, if necessary, to guarantee the caterer an adequate return on the operation. Three locations allowed employees and others to eat without direct payment at the time of consumption of the meal. These three locations operated by a procedure whereby the caterer would receive payment directly from the employer (not the employees) at a later date. Such payment included the fees, the subsidy, if applicable for that period, and a per meal charge for the number of meals eaten or a flat fee per employee. The caterer believes that pursuant to Szabo Food Services, Inc. v. State Board of Equalization ((1975) 46 Cal.App.3d 268) the fees and subsidies received from these three locations are excluded from the taxable measure. The caterer's reliance upon Szabo as being identical is misplaced. In contrast, Szabo's cafeteria's operated on a direct payment system wherein those eating would pay for the meal directly to cafeteria personnel. The court reasoned that "the employees who purchased the cafeteria meals provided the only consideration for the sale of the meals." At the locations at issue, the caterer does not collect cash payment from the patrons. The patrons eat without paying (signing a guest check in some instances) and the caterer is paid at a later date pursuant to an agreed upon rate or formula. The caterer receives a single payment which includes consideration for the food and services as well as the fee and the subsidy. This is the difference between this case and Szabo. In Szabo, the consideration received from the employees as payment for the meals is readily calculable and easily verified as representing the only consideration which is included in gross receipts. In this case the employers, not the employees, pay the consideration which includes the payment for the meals, the fees, and the subsidies. At these three locations, all amounts received by the caterer from the employers are and must be deemed to be consideration received for meals provided and thus includable in gross receipts. 7/17/90.