How did California allocate a $12 dinner-club membership when the promoter kept $10 and paid $2 to a restaurant offering a free meal with an equal-value purchase?
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This page answers the general question as of 1962. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A one-year dinner-club membership cost $12. It entitled the member to a free meal at a participating restaurant if the member bought another meal of equal or greater value.
The promoter kept $10 of the membership price and paid $2 to the restaurant. Tax counsel treated the promoter's $10 as not subject to tax, but included the restaurant's $2 share in the restaurant owner's gross receipts. The amount charged for the meal the customer actually purchased was also taxable.
The restaurant was not supposed to charge tax on the free meal. If it did, the memorandum said that excess reimbursement had to be paid to the state under section 6054.5.
Common questions
Was the entire $12 membership fee taxable?
No. The source excluded the promoter's $10 share and included the restaurant's $2 share in restaurant gross receipts.
Which meal charge was taxable at redemption?
The price collected for the required purchased meal. The companion meal was free under the membership offer.
Could the restaurant keep tax charged on the free meal?
No. The memorandum treated that amount as excess reimbursement payable to the state.
Citations and references
- California Revenue and Taxation Code section 6054.5 (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/550-0340.pdf
Original ruling text
State of California
Board of Equalization
550.0340
Memorandum
To:
Mr. H. A. Dickson
From:
Headquarters – Tax Counsel (JHK)
Subject:
Taxability of Receipts from Sales of Dinner Club Memberships
Date:
November 27, 1962
In researching this matter, I found that Mr. Stetson had written several letters recently on similar situations. However, in none of these did the promoter turn over part of the receipts of sales of the memberships to the restaurant owner. Therefore, I waited until Mr. Stetson returned before writing you. In the instant case, the membership entitles the member to a free meal at the given restaurant provided he purchases a meal of equal or greater value. The membership sells for $12.00 and is good for one year. The promoter keeps $10.00 and turns $2.00 over to the restaurant owner. It is our opinion that the $10.00 kept by the promoter is not subject to tax, but that the $2.00 paid the restaurant owner is a part of his gross receipts. Also amounts collected for the sale of the one meal at the restaurant are taxable. If a restaurant charges tax on the price of the free meal, it of course, must pay such excessive reimbursement over to the state under the provisions of §6054.5. Apparently, it is the practice in some cases for the restaurant to charge tax on both meals. This is probably done through ignorance, and if the restaurant is made aware that it must pay this excessive reimbursement over to the state, this practice will probably stop. JHK:cw cc: Marysville - Auditing
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