Were food ingredients bought by a fraternal organization for a free member banquet taxable?

Plain-English summary

A redacted fraternal organization had dining-room facilities used from time to time for public meal sales and, on rare occasions—perhaps once yearly—for a free member banquet. After the San Francisco office advised generally that a property donor consumed a taxable gift at cost, counsel asked whether Regulation 1670 covered the situation.

Tax Counsel Lawrence A. Augusta said the prior advice was generally correct. Regulation 1670(a) treated a gift donor as consumer, but section 6359 food products remained exempt even when later given away as meals. Because qualifying food products were not yet meals when sold to the organization, that sale was exempt.

Tax still applied to gifted property outside the food-products definition, including alcoholic or carbonated beverages, paper napkins, ice, and similar items. The source cited and enclosed Ruling 52. Section 6005 treated the fraternal organization as a person separate from its members, making them third parties to the organization.

The result assumed club employees prepared and served the meals. If an independent contractor such as a caterer and its employees did so, tax applied to amounts the caterer received from the organization for the free banquet.

Source and live-annotation limits

The official PDF does not include the February 24 request, San Francisco office advice, organization or member records, dining-room operations, public meal sales, banquet or any meal, food or other property, beverage, napkin or ice purchases, employee records, Ruling 52 enclosure, caterer or contract, amounts paid, invoices, sales or uses, returns, exemption documentation, tax calculations or payments, audit, assessment, claim, appeal, or later outcome. The counsel, client, members, employees, caterer, diners, vendors, transactions, quantities, prices, banquet frequency beyond the estimate, and tax amounts are redacted or unidentified.

The source ends with the initials form LAA :ph [lb]. The original-text section preserves that spacing and the historical terms rather than normalizing them.

The live annotation preserves the fraternal organization, free member meals, exempt food products, taxable beverages, ice and napkins, donor-consumer treatment, caterer alternative, date, and tax results. It omits the request and counsel, dining-room public sales and rare annual-banquet estimate, prior San Francisco advice, Regulation 1670(a), purchase-before-meal reason, section 6359, paper-napkin wording and Ruling 52, section 6005 and separate-person reasoning, express club-employee assumption, missing records, redactions, source form, and absent outcome.

What this means for you

Clubs, fraternal organizations, caterers, and tax professionals

Preserve each food and nonfood item, purchase condition, invoice and tax treatment, dining-room and banquet records, recipient and member status, employee preparation and service records, caterer contracts and payments, Ruling 52 or current authority, returns, exemption documents, tax calculations, and payments. Identify who bought, prepared, served, donated, and received each item.

Common questions

Were all banquet purchases exempt?

No. The exemption covered qualifying food products, not the listed beverages, napkins, ice, or other nonfood property.

Did it matter that the meals were given to members?

The organization and its members were separate persons, making the meals gifts to third parties.

What if a caterer prepared and served the banquet?

The caterer's charges were taxable under the opinion.

How often did the free banquet occur?

The source says rarely, perhaps once a year; it includes no banquet record.

Did the source include Ruling 52?

No. It says a copy was enclosed, but the published PDF does not contain it.

Why were members third parties?

Section 6005 treated the fraternal organization and its members as separate persons.

Citations and references

• California Revenue and Taxation Code §§ 6005 and 6359
• California Code of Regulations, title 18, § 1670(a)
• Former California Sales and Use Tax Ruling 52
• February 24 request, prior San Francisco advice, food and nonfood purchases, public meals and banquet, Ruling 52 enclosure, caterer records, tax records, and outcome — described or implicated but not documented

Verbatim support

From the official Tax Counsel opinion:

Since the "food products" were not in the form of meals when sold to your client, the sale is exempt.

Tax does apply, however, to the gift of property which is not within the definition of "food products" which ordinarily would be served or supplied with the meal, such as alcoholic or carbonated beverages, paper napkins, ice, etc., (see ruling 52, copy enclosed).

My answer is based on the assumption that the persons preparing and serving the meals are employees of the club.

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/390-0080.pdf

Original ruling text

390.0080

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 3, 1970
Dear Mr.
This is in response to your letter of February 24, 1970 addressed to our San Francisco office, which was referred to the undersigned for reply. Your client is a fraternal organization which has dining room facilities which are used from time to time for the purpose of selling meals to the general public. On rare occasions, perhaps once a year, the dining room facilities are used to provide members with a free banquet. You had been advised by our San Francisco office that gifts of property are generally treated as taxable to the donor measured by his cost. You now ask if Regulation 1670 was intended to cover your situation. The earlier advice you received was correct in general application. However, it does not apply to gifts of "food products" as defined in Revenue and Taxation Code Section 6359, even if they are given away in the form of meals. As provided in Regulation 1670(a), persons who make gifts are consumers, and tax applies to the sale of the property to the donors. Since the "food products" were not in the form of meals when sold to your client, the sale is exempt. Tax does apply, however, to the gift of property which is not within the definition of "food products" which ordinarily would be served or supplied with the meal, such as alcoholic or carbonated beverages, paper napkins, ice, etc., (see ruling 52, copy enclosed). A fraternal organization is defined as a "person" by Section 6005 for purposes of the Sales and Use Tax Law. Consequently, the members of the organization are "third parties" as to the organization as they are separate persons under the law. My answer is based on the assumption that the persons preparing and serving the meals are employees of the club. If the meals are prepared and served by an independent contractor, such as a caterer, and his employees, tax would apply to amounts received by him from the organization for the free banquet. Very truly yours, Lawrence A. Augusta Tax Counsel LAA :ph [lb]