Could a club treat one-third of a fixed per-person dinner charge as exempt clubhouse rent when another organization used its facilities?

Plain-English summary

A club owned a clubhouse, let other organizations use the facilities, and charged $2 per person for a dinner. It treated roughly one-third of that amount as nontaxable clubhouse rent.

The memorandum rejected the allocation. It treated the club as selling meals in the same manner as an ordinary restaurant, so no part of the fixed per-person dinner charge could be carved out as exempt room rental.

The source accordingly agreed with an audit determination covering all amounts the club had deducted from meal receipts as clubhouse rentals.

Common questions

Could the club internally label part of the dinner price as rent?

No. The source treated the full per-person amount as the charge for meals.

Did the memorandum address a separate room-only rental?

No. Its facts involved one fixed charge per dinner guest.

What happened to the prior deductions?

The memorandum agreed with an audit determination for the amounts deducted as clubhouse rent.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/550-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/550-0200.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

550.0200
Sacramento, California
January 10, 1955

To:

San Diego – Tax Administrator

From:

Headquarters – Sale Tax Counsel (BH)

Subject:

N--- P--- L--- Club
XXXX --- Street
--- --- X, California

Account No. - - XXXXX

This is in reply to your letter of November 12, 1954, addressed to Mr. H. A. Dickson. Taxpayer has a clubhouse and allows other organizations to use the facilities for a fee. The taxpayer has a resident manager who supervises operations at the clubhouse. As an example, the taxpayer will charge an organization $2.00 per head for a dinner. They will regard approximately one-third of this amount as the charge for rental of the clubhouse and will consider it non-taxable. It is our opinion that the taxpayer is selling meals in the same manner as an ordinary restaurant and that no part of the charge may be allocated to club house rental and regarded as exempt. Accordingly, your audit is correct in recommending a determination against the taxpayer for all amounts deducted from meals as clubhouse rentals.

Bill Holden

BH:ja