Could a caterer exclude separately billed wages for temporary workers who served food, tended bar, and washed dishes?

Plain-English summary

A caterer arranged occasional outside workers to serve prepared food, tend bar, and wash dishes. Customers paid wage-based amounts that the caterer showed separately from other service charges.

Tax counsel concluded that the wages remained in the caterer's gross receipts from selling meals. By soliciting, engaging, or hiring the help—even as an accommodation—the caterer became sufficiently involved for the workers' services to form part of the food sale.

The result did not depend on how the payment moved, whether the caterer withheld payroll taxes, or whether the workers were temporary independent contractors. The amounts were fixed obligations based on wage scale and hours, not optional gratuities.

Citations and references

• California Sales and Use Tax Law section 6011.5, quoted as defining gross receipts to include the total sale amount, services that are part of the sale, and all receipts of any kind (as cited in the supporting letter) — the live annotation supplies no statutory citation
• Anders v. State Board of Equalization, 82 Cal. App. 2d 88 (as cited and distinguished concerning tips, exactions, and gratuities) — opinion text and case record not reproduced in the official PDF
• Unidentified Board matters involving private country clubs' automatic percentage additions labeled tips or service charges — matter names, dates, decisions, records, and later treatment not identified or supplied in the supporting letter
• Redacted R petition for redetermination and facts concerning outside help, food preparation, service-charge billings, payroll withholding, wage scales, hours, and payment arrangements — petition, contracts, customer invoices, worker agreements, payroll records, time records, and payment records not reproduced in the official PDF
• Unidentified action in which a customer's insurer prevailed over the petitioner's insurer concerning an injured outside worker — court, parties, date, docket, pleadings, decision, policy documents, and payment records not identified or supplied in the supporting letter
• February 15, 1967 associate-tax-counsel response signed by Robert H. Anderson recommending no adjustment and offering a Board hearing if requested in writing within three weeks — no staff recommendation record, petitioner response, hearing request, Board decision, payment, refund claim, appeal, or later outcome supplied
• Official Annotation 295.1440's caterer characterization, listed worker tasks, separately stated customer amount, nondeductibility conclusion, and February 15, 1967 date — annotation omits the petition, arrangements, payment and payroll distinctions, injury-insurance action, section 6011.5, Anders analysis, unidentified country-club matters, recommendation-only posture, offered hearing, missing records, final 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/295-1440.pdf

Original ruling text

STATE OF CALIFORNIA

295.1440

STATE BOARD OF EQUALIZATION

February 15, 1967

--- --- ----- --- ----- --- --Dear Mr. --- ---:
This refers to the petition for redetermination filed on behalf of “R”. We have considered all the facts relating to the use of outside help in serving food prepared by your client, and we have checked the case of Anders v. State Board of Equalization, 82 Cal. App. 2d 88, to see if it is analogous to the “R” matter. To the extent that the case involved the question of whether so-called tips were the seller’s gross receipts, there is a similarity. In “R” we are to determine whether the wages paid to outside help are considered your client’s gross receipts. We all agree that the outside help is temporary. They are only occasionally employed. There are no doubt several circumstances giving rise to the hiring of outside help. Your client, in figuring the food costs per person, might recommend what help is needed to make the affair a success. It was stated that he offered to make arrangements to obtain the needed or recommended help if the customer wanted him to do so. All of these facts do not dictate a finding that the wages paid to the outside help are not gross receipts from serving the meals. Gross receipts, as defined in Section 6011.5 of the Sales and Use Tax Law, mean the total amount of the sale valued in money. The total amount of the receipts from a sale includes “any” services that are a part of the sale, and “all” receipts of any kind. Clearly, part of the charges for serving the food includes a charge for the services. Your client’s billings to the customer show that “service charges” are billed separately. This does not necessarily preclude them from being gross receipts to your client. The fact that your client does not withhold any sum for payroll tax, etc., purposes does not dictate a finding that the wages are not a charge for serving the food or are not his gross receipts.

Mr. --- ---

-2-

February 15, 1967
295.1440

If your client, for whatever reason, solicits, engages, or hires outside help, even as an accommodation for the customer, he becomes sufficiently involved with the independent contractor so obtained that the wages paid are a part of the charge for selling the food and a part of your client’s gross receipts. We give considerable weight to the incident where one of the outside help was injured and the customer’s insurance company prevailed in an action to determine whether the customer’s insurance company or your client’s insurance company should be liable for payments resulting from the injury. We think if the court had found that the injured party had been an employee of the customer, your client’s insurance company would not have been liable. The Anders case involved tips, and whether tips given by customers are gross receipts from the sale. One question regarding tips and gross receipts turns on whether the tip is an exaction or a gratuity. The Board has held that in cases involving private country clubs which add a certain percent to the members’ food charge and label it tip or service charge, the added sum is gross receipts from the sale of the food even if the club management turns the added sum over to the employee performing the service. This is because the added sum is automatic and the member does not have any choice in whether it should be added. In other words, it is an exaction. In the “R” matter, we are not confronted with the question of whether any of the wages are a gratuity or an exaction. The sum we are concerned with is an obligation of the customer fixed by the wage scale and the hours worked. To this extent the Anders case is not analogous. Summarily, it is our opinion that the wages paid to outside help that served food, tended bar, washed dishes, etc., and which was arranged for by your client, are gross receipts from the sale of food regardless of how the payments were made or the reason why your client made the arrangements for the help. We are, therefore, recommending that there be no adjustment. If, after considering our recommendation and the reasons therefore, your client wishes to have the matter heard by the Board, please notify us in writing within three weeks. Very truly yours,

Robert H. Anderson
Associate Tax Counsel
RHA:dse

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