How did California tax a high school's regular snack bar, student-club game concessions, and vending-machine rebate?

Plain-English summary

A redacted high-school Associated Student Body raised money for sports and other school activities through a regular snack bar selling fountain sodas, Hostess cupcakes, candy, and chips. It held a seller's permit and tax ID and said it had reported quarterly since July, asking whether to collect and pay the then-stated 7.75% rate.

California concluded that the snack bar made taxable retail sales. Regular operation failed the irregular-or-intermittent youth-organization rule. The student body correctly collected reimbursement and paid tax, and it could buy snack-bar inventory ex-tax with valid Regulation 1668 resale certificates.

The school and clubs qualified as youth organizations under Regulation 1597, but the special consumer rule also required the described goods or member-created property, irregular or intermittent sales, and profits used solely and exclusively for organization purposes. Counsel assumed the Associated Student Body itself did not run the basketball-game stands.

Separate student clubs' concession stands at regularly scheduled basketball games qualified as irregular or intermittent sales, so their qualifying sales were exempt and the clubs were consumers. Purchases of nonexempt items such as carbonated beverages, Hostess cupcakes, candy, and chips remained taxable. If a central school agency bought them ex-tax for resale, the clubs owed use tax measured by their purchase price of nonexempt items.

For campus Pepsi machines, the operator collected and counted the money and paid the student body $1.50 per case. The opinion assumed the operator made the soda sales, paid their tax, and shared after-tax profits. On those assumptions the operator, not the student body, was the retailer and needed a seller's permit; the student body did not report tax on those sales.

Source and live-annotation limits

The official PDF does not include the February 28 request except as quoted, snack-bar or concession records, product or food facts beyond the quoted descriptions, club and sponsor records, profit-use records, schedules or event records, seller's permit or tax ID, supplier invoices, resale certificates, central-agency purchasing records, vending machines, operator agreement or accounting, Pepsi or operator tax records, quarterly returns, Regulations 1597 and 1668 enclosures, exemption documentation, tax calculations or payments, audit, assessment, claim, appeal, or later outcome. The school, representative, clubs, operator, suppliers, customers, transactions, quantities, prices beyond the rebate, historical tax collections, and tax amounts are redacted or unidentified.

The source prints a malformed citation parenthesis after Market St. Ry. Co. and the school question says quarter reports which have been doing since July. The original-text section preserves those forms rather than silently rewriting the request or citation.

The live annotation preserves the three scenarios, regular snack-bar result, basketball-game concession issue, Pepsi vending facts, operator-tax assumption, date, and retailer outcomes. For the concession rule it says scheduled events of organized youth sports leagues, while the opinion quotes Regulation 1597 as including regularly scheduled athletic events and applies that language to school basketball games. The live entry omits the request and counsel, historical rate, seller's permit and reporting history, statutes, regulations and cases, youth-organization and profit-use conditions, assumption about who ran the game stands, purchase-side food and resale-certificate analysis, central-agency use tax, exact $1.50 rebate, operator permit, missing records, redactions, source forms, and absent outcome.

What this means for you

Schools, student groups, vendors, and tax professionals

Separate each operator and selling channel. Preserve youth-organization and sponsor records, profit use, every product and food classification, sales schedule and event, seller's permits, supplier invoices and resale certificates, central purchases and club transfers, vending agreements and collections, operator tax records, returns, tax calculations, and payments.

Common questions

Were regular snack-bar sales exempt student fundraising?

No.

Were club concessions at scheduled basketball games exempt?

Yes, if the stated youth-organization conditions were met.

Did the school owe tax on the vending-machine profit share?

No under the opinion's assumptions that the operator sold the drinks and paid the sales tax.

Did the Associated Student Body operate the game concessions?

Counsel expressly assumed it did not; separate student clubs operated them.

Were the clubs' purchases automatically exempt?

No. As consumers, they owed tax on nonexempt purchases; a central ex-tax purchase could instead create club use tax on purchase price.

Did the source establish the operator's actual tax payment?

No. That was an express assumption.

Citations and references

• California Revenue and Taxation Code §§ 6051, 6091, and 6361
• California Code of Regulations, title 18, §§ 1597, 1602, and 1668
• Market St. Ry. Co. v. California State Board of Equalization (1953) 137 Cal.App.2d 87, 96 [290 P.2d 201]
• Standard Oil Co. v. State Board of Equalization (1974) 39 Cal.App.3d 765, 769 [114 Cal.Rptr. 571]
• February 28 request, school and club operational records, purchase and resale certificates, vending agreement and operator tax records, enclosures, returns, and outcome — described or implicated but not documented

Verbatim support

From the official Tax Counsel opinion:

Since the snack bar is open regularly, its sales do not qualify for the above exemption.

The regulation defines “irregularly or intermittent” to include sales made at regularly-scheduled athletic events. (Reg. 1597(d)(1)(C).) As a result, the student clubs’ sales from their concession stands at the basketball games are exempt from tax.

We assume that the vending machine operator pays tax on his sales so that the $1.50 “rebate” per case represents a cut of the after tax profits.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/390-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/390-0050.pdf

Original ruling text

390.0050

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

March 31, 1992

Ms. S--- S--Students Accounts
C--- S--- H--- School
XXXX --- Drive
--- ---, CA XXXXX
RE:

SR -- XX-XXXXXX

Dear Ms. S---:
I am writing this to answer your letter of February 28, 1992, which you wrote to the State Board of Equalization. The Board referred it to the Legal Division for a response. You have asked several questions regarding sales made by, or on behalf of, your organization. I.

FACTUAL BACKGROUND
You set forth the factual backgrounds of your problem as follows: “We are the Associated Student Body of C--- H--- S--- (‘ASCHS’), as part of our fund raising projects to help meet our school budget for sports and other school activities, we operate a snack bar and sell such items as fountain sodas, hostess cup cakes, candies and chips. We hold a seller’s permit and a tax I.D. Number. Should we collect tax on these items of 7.75 percent and pay that tax to the State Board of Equalization on our quarter reports which have been doing since July. Please advise us. “Several of our clubs hold concession stands at our basketball games – should we pay taxes of 7.75 percent on those concessions? We also have Pepsi Cola Vending machines on our campus. Pepsi Cola collects the money from the machines, counts it and gives us a $1.50 rebate on each case sold. Should we pay tax on the rebate received from Pepsi Cola?”

Ms. S--- S---

-2-

II.

OPINION

A.

Sales and Use Tax Generally

March 31, 1992
390.0050

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 P.2d 201.) “The taxpayer has the burden of showing that he clearly comes within the exemption.” Standard Oil Co. v. State Bd. of Equalization (1974) 39 Cal.App.3d 765, 769 [114 Cal.Rptr. 571].) B.

Tax Consequences to ASCHS
1.

Snack Bar and Concession Stands.

Regulation 1597, interpreting and implementing Section 6361, provides that under certain circumstances, qualified youth organizations are the consumers and not the retailers of food products, candy, confectionery, snack foods, and tangible personal property created by members of the organization sold on an intermittent or irregular basis provided the profits from such sales are used solely and exclusively in the furtherance of the purposes of the organization. (Reg. 1597(d)(1).) ASCHS and the student clubs you mention are “qualified youth organizations” sponsored by or affiliated with C--- S--- H--- School. (Reg. 1597(d)(1)(A)(2).) Thus, under the regulation, when ASCHS or the clubs you mention buy the above items for the purpose of reselling them under the conditions set forth in the regulation, their purchases of these items are subject to tax. Their subsequent sales, as long as they occur under the conditions set forth in the regulation, are exempt from tax. Your letter indicates that ASCHS operates a snack bar which appears to be open on a regular basis. It also indicates that other student clubs operate concession stands at CHS’ basketball games. We assume that ASCHS does not operate a stand at these games. Since the snack bar is open regularly, its sales do not qualify for the above exemption. ASCHS is thus the retailer of the items it sells there and so is correct in paying tax and collecting sales tax reimbursement on its sales of the above products. The regulation defines “irregularly or intermittent” to include sales made at regularly-scheduled athletic events. (Reg. 1597(d)(1)(C).) As a result, the student clubs’ sales from their concession stands at the basketball games are exempt from tax. ASCHS may buy the above products for its snack bar from its suppliers free of tax by giving them resale certificates which meet the requirements of Regulation 1668. However, as

Ms. S--- S---

-3-

March 31, 1992
390.0050

discussed above, the student clubs are consumers of the items they sell at their stands at the games. Sales of such items to the clubs are subject to tax unless the items qualify as food products under Regulation 1602. Such products as carbonated beverages, Hostess cup cakes, candies and chips are excluded from the term “food products” under Regulation 1602(a)(2) & (4). If all of the products are purchased through a central agency at the school, then they may be purchased free of tax by that agency issuing the suppliers with resale certificates. The student clubs will then be liable for use tax measured by the purchase price of their purchases of nonexempt items. 2.

Vending Machines.

You indicate that the vending machine operator sells the sodas and gives ASCHS a cut. We assume that the vending machine operator pays tax on his sales so that the $1.50 “rebate” per case represents a cut of the after tax profits. Under that fact pattern, he and not ASCHS is the retailer of the sodas and so is required to possess a seller’s permit. ASCHS therefore is not required to report and pay tax on these sales. This conclusion is specifically based on the assumptions stated above. For your information, I have enclosed a copy of Regulation 1597 and 1668. 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
1006I
encs.: Regs. 1597 & 1668