Could a retirement home exempt meals for only those residents required to buy room and board for one flat monthly fee?

Plain-English summary

The redacted home's absent June 30, 1994 letter described 37 living units, all residents over 65, claimed federal and California tax exemptions, and an independent caterer serving breakfast, lunch and dinner on site. Current residents paid a maintenance fee excluding optional meals. Those meal sales were taxable because the home did not supply both room and board for a flat monthly rate.

The planned arrangement for 12 residents was different. Those residents would be required to take six meals per week, and the meal cost would be included in the monthly fee. Their bundled room-and-board arrangement qualified for the exemption.

The letter said the regulation did not require every resident in the home to receive room and board for one flat fee. All residents were over 65, satisfying the age criterion described in the opinion.

The plan was proposed for 1995. The PDF supplies no agreements, caterer contract, exemption determinations, implementation, transaction, audit, appeal, or later outcome. The live annotation adds that amendments adopted June 20, 1995 renumbered Regulation 1503(a)(3) as (a)(4), but supplies no amendment record or substantive-effect analysis.

Common questions

Were the home's optional meals exempt?

No. They were outside the flat monthly maintenance fee.

Did every resident have to join the bundled meal plan?

No. The letter approved the exemption for the 12 residents under the planned arrangement.

What age fact supported institution status?

All residents were stated to be 65 or older; the regulation's test permitted no more than four residents under 62 in a calendar quarter.

Citations and references

• California Revenue and Taxation Code sections 6051 and 6091 — described or quoted for general retail-sales tax, taxable-receipts presumption, and seller's burden; complete text, versions, exemptions, and later history not supplied
• Market Street Railway Co. v. California State Board of Equalization (1953), 137 Cal. App. 2d 87, 96, 290 P.2d 201, and Standard Oil Co. v. State Board of Equalization (1974), 39 Cal. App. 3d 765, 769, 114 Cal. Rptr. 571 — quoted for statutory exemptions and the taxpayer's burden; opinions, procedural histories, and later treatment not reproduced
• California Revenue and Taxation Code section 6363.6 and California Sales and Use Tax Regulation 1603(m) — quoted for the resident or patient meal exemption and tax on institutional sales to other persons; complete statute and regulation, versions, definitions, and later history not supplied
• California Sales and Use Tax Regulation 1503(a)(3) — quoted for a qualifying senior house, retirement home or similar establishment and the no-more-than-four-under-62 rule; complete regulation, version, and later history not supplied
• Live-annotation note that Regulation 1503(a)(3) became section 1503(a)(4) through amendments adopted June 20, 1995 — amendment text, notice, rulemaking record, filed date, effective date, substantive effect beyond renumbering, and later history not supplied
• June 30, 1994 redacted administrator letter supplying the 37-unit, all-over-65, tax-exemption, independent-caterer, current optional-meal, and proposed 1995 six-meal-per-week facts — request, exemption determinations, maintenance agreements, caterer contract, menus, invoices, resident records, meal-plan documents, and tax records not reproduced in the official PDF
• August 25, 1994 Tax Counsel John L. Waid response taxing current optional meals but exempting planned bundled meals for 12 residents — no requester reply, program implementation, 1995 transactions, return, audit, assessment, refund claim, appeal, or later outcome supplied
• Official Annotation 300.0124's some-but-not-all residents, required and optional meals, single monthly room-and-board fee, exemption, August 25, 1994, and 1995 renumbering rules — annotation omits the June 30 request provenance, 37 units, all-over-65 and six-meal facts, independent caterer, stated income and franchise exemptions, statutes, regulations and cases, absent program records, proposed-future posture, 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/300-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/300-0124.pdf

Original ruling text

300.0124

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

August 25, 1994

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. B--- A--- A--Administrator, W--- H--XXX --- Street
--- ---, California XXXXX
Re:

[No Permit Number]
Sales of Meals

Dear Ms. Abbaduska:
I am responding to your letter to the Legal Division dated June 30, 1994. You ask for an opinion as to the application of sales tax to W--- H---'s sales of meals to its residents. You describe the factual background as follows: "W--- H--- is a retirement home with 37 living units which supplies room and optional board for its residents who are all over 65 years of age. W--- H--- is exempt from Federal Income Tax under Section 501 (c) (3) and California Franchise Tax under Section 2730 (d). "W--- H--- contracts with an independent caterer, R--- H---, which prepares and provides meals to W--- H--- residents on the premises. R--- H--- provides breakfast, lunch, and dinner. "Currently, W--- H--- residents pay a monthly maintenance fee which does not include the cost of optional meals. "Commencing in 1995, 12 residents of W--- H--- will be required to eat 6 meals per week, which cost will be included in their monthly maintenance fee." You are of the opinion that tax should not apply to the meal sales to the 12 residents who are obligated to take their meals at W--- H---.

Ms. B--- A--- A---

-2-

August 25, 1994
300.0124

OPINION
A. Sales and Use Tax Generally.
In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes an excise tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. (Unless otherwise stated, all statutory references are to the Revenue and Taxation Code.) "[I]t shall be presumed that all gross receipts are subject to tax until the contrary is established. The burden of proving that a sale of tangible personal property is not a sale at retail is upon the person who makes the sale ..." (§ 6091.) "Exemptions from taxation must be found in the statute." (Market St. Ry. Co. v. Cal. St. Bd. of Equal. (1953) 137 Cal.App.2d 87, 96 [290 PO.2d 201.]) "The taxpayer has the burden of showing that he clearly comes within the exemption." (Standard Oil Co. v. St. Bd. of Equalization (1974) 39 Cal.App.3d 765, 769 [114 Cal.Rptr. 571].) B. Sales of Meals by Institutions. Regulation 1603(m), interpreting and implementing Section 6363.6, provides as follows: "Tax does not apply to the sale of, nor the storage, use, or other consumption in this state of, meals and food products for human consumption furnished or served to and consumed by patients or residents of an 'institution' as defined in Regulation 1503. Tax, however, does apply to the sale of meals and food products by an institution to person other than patients or residents of that institution." (Sales and Use Tax Regulations are issued by the Board to aid in the enforcement and administration of the Sales and Use Tax Law and have the force and effect of law.) The provision of Regulation 1503 which may apply to your fact pattern is sub-division (a)(3) which includes as an "institution" any "house, retirement home or similar establishment supplying board and room for a flat monthly rate and serving as a principal residence exclusively for person 62 years of age or older. For purposes of this regulation, the term 'exclusively' is defined to mean that no more than four persons under 62 years of age are in residence during any calendar quarter." C. Tax Consequences to W--- H---. In order to the qualify for the exemption, implemented by Regulation 1603(m), then, the institution must satisfy two criteria - (1) no more than four of its residents may be under 62 years of age; and (2) board and room must be supplied for a flat monthly rate. You indicate that all of W--- H---'s residents are 65 years of age and older, which satisfies the first criterion. Because

Ms. B--- A--- A---

-3-

August 25, 1994
300.0124

meals are not supplied as part of the monthly fee, however, we are of the opinion that the exemption provided by Regulation 1603(m) does not apply to W--- H---'s current operation. We are also of the opinion, however, that this exemption will apply to W--- H---'s sales of meals to the 12 residents who will be required to eat there beginning in 1995. You state that the cost of such meals will be included in the monthly fee. There is no requirement in the regulation that all residents be supplied room and board for a flat monthly fee. We thus conclude that W--- H---'s provision of room and board for a flat monthly rate to the twelve residents who will come under that arrangement in 1995 will not be subject to tax. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Tax Counsel
JLW:es