Were snacks sold from unattended honor boxes taxable as vending-machine sales, and did the location of the tray matter?

Plain-English summary

A snack vendor left open boxes or trays at customer locations. Customers selected candy, cookies, crackers, chips, and similar snacks and deposited money without a clerk. The Board concluded that this honor system was not a vending machine: ordinary usage required a coin-operated machine, while the vendor used nonmechanical open boxes or trays. The vending-machine exception therefore did not make the snack sales taxable.

Location still mattered. Snacks sold at or near a lunchroom, break room, or comparable facility were taxable when tables, chairs, counters, dishes, or other tableware were provided and consumption there was contemplated. A location's sales of unrelated taxable merchandise did not matter; the relevant question was whether the location fit the cited food-consumption-facility rule.

The letter also separated the historical snack-food period. From July 15, 1991 through November 30, 1992, the described snacks were excluded from the food-products category and were taxable regardless of the honor-box format or location. Proposition 163 restored their treatment as food products effective December 1, 1992.

Common questions

Was an unattended snack tray a vending machine?

No. The source treated a vending machine as a coin-operated machine and said an open, nonmechanical honor box or tray did not qualify.

Were post-November 1992 honor-box snacks always exempt?

No. They could be taxable when sold at a lunchroom, break room, or similar eating facility where consumption was contemplated.

Did placing the tray inside a store that sold taxable goods make the snacks taxable?

No. The letter said unrelated taxable sales at the location had no bearing; the eating-facility facts controlled.

Citations and references

• California Revenue and Taxation Code section 6359(d)(2) and (5) (as cited)
• California Sales and Use Tax Regulations 1602 and 1603(f) (as cited)
• People v. Eddy (1872) 43 Cal. 331, 336-337 (as cited)

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/550-0270.pdf

Original ruling text

550.0270

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-2642

MEMBER
First District
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego

September 23, 1993

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS

Controller, Sacramento

Mr. H--- C--- B--XXXX --- --- Court
---, CA XXXXX

Re:

BURTON W. OLIVER

Executive Director

Application of Sales Tax
Snacks Sold Through Honor Vending
#SR --- XX-XXXXXX

Dear Mr. B---:
We are writing in response to your undated letter requesting an opinion about the application of sales tax to sales of snacks you sell through the honor system. In your letter you state: I was advised when I first started my business that snacks (candy, cookies, crackers, chips etc.) sold from a tray on the honor system (no machine of any kind) were not taxable, if not sold in a lunchroom or other place where items are held for sale that are taxable. Our response is based on the assumption that by "honor system" you mean a system whereby customers take snacks from a box or tray and pay for the snacks by depositing money in a container the seller leaves with the box or tray. The customers are "on their honor" because there is no clerk to take their money. Your question is whether snacks sold through honor boxes or trays are taxable, depending on where the sale is made.

1. FOOD PRODUCTS - SNACK FOODS
   In general, tax does not apply to sales of food products for human consumption. (Sales and Use Tax Regulation 1602.) However, for the period of July 15, 1991 through November 30, 1992, candy or confectionery, nonmedicated chewing gum, and other snack foods were not considered food products for human consumption, with the result that the sales of such products were subject to tax. The taxation of sales of snack food was reversed by the passage of

Mr. H--- C--- B--SR --- XX-XXXXXX

-2-

September 22, 1993
550.0270

Proposition 163 in the November 3, 1992 general election and effective December 1, 1992 snack foods are again considered food products. Consequently, if you sold any snacks from July 15, 1991 through November 30, 1992 (the brief period when sales of snack foods were excluded from the food products category and treated as taxable), these items are taxable whether or not honor boxes are considered vending machines for sales tax purposes.

2. HONOR SYSTEM
   Subdivision (d)(5) of Revenue and Taxation Code section 6359 provides that none of the food products exemptions otherwise provided in that section apply when the food products are sold through a vending machine. Thus, sales of food products through vending machines are subject to sales tax. Admittedly, vending machines and snack trays share common characteristics. Both are unattended, and in both cases the transaction can be completed when the customer places money in a slot or other opening. Nevertheless, words in a statute are to be given their ordinary and plain meaning unless the context or apparent scope shows that the words are used in a technical or in some arbitrary sense. (People v. Eddy (1872) 43 Cal. 331, 336-337.) The dictionary (Webster's New World Dict. (3d College ed. 1991) p. 1480) defines a vending machine as "a coin operated machine for selling certain kinds of articles, refreshments, etc.". (Emphasis added.) Therefore, the plain meaning of "vending machine" does not include trays or nonmechanical open boxes. Consequently, we consider your snack tray as similar to snack bars or snack carts which also happen to be unattended. This means that your sales of snacks on the honor system are not considered taxable sales of food products through vending machines within the meaning of Revenue and Taxation Code section 6359(d)(5). 3.

FOOD FOR CONSUMPTION AT FACILITIES PROVIDED BY THE RETAILER

Sales of food near lunch rooms, break rooms, or other food service facilities are another exception to the general rule that sales of food products are exempt. (Rev. and Tax. Code § 6359(d)(2).) Sales and Use Tax Regulation 1603(f), which explains this statute, provides: "Tax applies to sales of sandwiches, ice cream, and other foods sold in a form for consumption at tables, chairs, or counters or from trays, glasses, dishes, or other tableware provided by the retailer or by a person with whom the retailer contracts to furnish, prepare, or serve food products to others. A passenger's seat aboard a train, or a spectator's seat at a game, show, or similar event is not a "chair" within the meaning of this regulation. Accordingly, except as otherwise provided in (c), (d), and (e) above, tax does not apply to the sale of cold sandwiches, ice cream, or any other food products sold by vendors passing among the passengers or spectators where the food products are not `for

Mr. H--- C--- B--SR --- XX-XXXXXX

-3-

September 22, 1993
550.0270

consumption at tables, chairs, or counters or from trays, glasses, dishes, or other tableware provided by the retailer.'" Accordingly, you were correctly advised that snacks sold through an honor tray may be taxable, depending on where the sales take place. Under Regulation 1603(f), your sales of snacks are taxable when sold at or near a lunchroom, break room, or other facility which provides tableware or provides tables, chairs, dishes and it is contemplated that the food sold through the snack tray will normally be consumed at such facilities. The fact that snacks are sold at a place that makes taxable sales of property other than food products has no bearing on the application of tax. For example, sales of snacks made at a hardware store are not ordinarily subject to tax. What is important is whether the snacks are sold at a location described in Regulation 1603(f). Again, you should be aware that none of the snacks sold during the period of July 15, 1991 through November 30, 1992 were considered food products for human consumption. Therefore, during that time period your sales of snacks were subject to sales tax regardless of where or how the snacks were sold. If you have further questions, feel free to write again. Sincerely,

Gerald Morrow
Staff Counsel
GM/md
Enclosures
cc:
Sacramento - District Administrator
Mr. Timothy Raboy
Return Review Section (MIC:35)