How did California tax golf-tournament entry fees that included a meal and prizes usable as discounts or gift certificates at the pro shop?

Plain-English summary

A golf club used most tournament entry fees for prizes, issued those prizes as discounts or gift certificates redeemable at its pro shop, and sometimes included a dinner at the club restaurant.

Tax counsel said the restaurant had taxable gross receipts equal to the meal's regular menu price. The rest of the entry fee represented the intangible right to compete in the tournament and was not subject to sales tax.

When winners redeemed the prize discounts or gift certificates for pro-shop goods, tax applied to the goods' full retail selling price. The source treated the prizes like cash used to pay for the goods, not as a reduction of the retailer's selling price.

Citations and references

• California Sales and Use Tax Regulation 1670 (as cited)
• January 6, 1976 letter to the Board's Long Beach office asking how tax applied to prize discounts for a client — letter and attachments, if any, not reproduced in the official PDF
• Golf-tournament entry fees, restaurant dinners, pro-shop prize discounts or gift certificates, and retail prices — program terms, fee and prize amounts, allocations, certificates, menus, sales records, and accounting records not reproduced in the official PDF
• May 26, 1976 tax-counsel response copied to Long Beach Auditing — no audit, assessment, refund claim, taxpayer response, agency adoption, appeal, or later outcome supplied
• Official PDF's literal final wording that the retail selling price had not been “refused” — no correction supplied; the preceding sentences and live annotation state that full retail selling price was taxable
• Official Annotation 295.1070's regular-price meal, cash-equivalent gift-certificate, full-retail-price pro-shop conclusions, and May 26, 1976 date — annotation omits the January 6 request, majority-of-fees prize fact, nontaxable intangible-right remainder, Regulation 1670, literal “refused” wording, copied auditing office, underlying records, later outcome, and reliance status and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-1070.pdf

Original ruling text

295.1070

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
916-322-6083

May 26, 1976

Attention: Mr. --Gentleman:
Your letter dated January 6, 1976, addressed to our Long Beach office has been referred to this office for reply. You inquire as to the application of tax to discounts awarded as prizes by your above-named client. We understand that your client holds golf tournaments in which the majority of the required entry fees are used for prizes. These prizes are in the form of discounts or gift certificates for use at the golf pro shop operated by your client. We further understand that in some tournaments, the entry fee also entitles the entrant to a free dinner at the club restaurant. You wish to know how the tax applies to the meals and to the goods purchased at the pro shop with prize discounts or gift certificates. We are of the opinion that the meals provided are subject to tax based on the regular menu price. We are also of the opinion that tax applies to the retail selling price of goods sold to prize winners by the pro shop. Sales and Use Tax Regulation 1670 provides that when tangible personal property is delivered as a premium or as a prize to each customer, tax applies to the gross receipts received from the purchaser from the transactions affected. Thus, the inclusion of a meal in the entry fee would not exempt the retail selling price of the meal from tax. The portion of the entry fee not assigned to the meal is a payment for the intangible right to compete in the golf tournament and is not subject to tax. With regard to the discounts or gift certificates, we would consider these the same as cash prizes. Thus, when goods are purchased at the pro shop, the retail selling price is subject to tax because the discount or gift certificates is considered to be merely a form of payment, and we would not consider that the retail selling price has been refused.

Very truly yours,
H. L. Cohen
Tax Counsel
HLC:js
bc: Long Beach – Auditing (SK)