Would a senior boarding house keep its meal exemption if it leased some rooms to a related corporation for a transient hotel open to the general public?

Plain-English summary

A proprietor operated a 284-room boarding house that supplied permanent residents age 62 or older with room and board for one flat monthly rate. The proprietor proposed forming a corporation that would lease about 25 rooms and sublease them to transient guests from the general public. The number of hotel rooms could vary with demand.

The two operations would have separate books, and the senior residents' dining room would remain unavailable to hotel guests. The hotel would provide room-service meals and possibly a continental breakfast in its separate lounge. But the hotel rooms and other shared facilities would not be physically partitioned from the senior residence.

The letter said the arrangement would end the boarding house's meal exemption. Section 6363.6, as quoted, required the house or institution to serve as a principal residence exclusively for people age 62 or older. Because transient guests under 62 probably would occupy rooms within the same institution, that exclusive-residency requirement would not be met.

Separate accounting, a separate lounge, and excluding hotel guests from the residents' dining room did not preserve the exemption under the proposed facts. The requester already acknowledged that the hotel's own meal service to transient guests would be taxable.

Common questions

Did separate corporate books preserve the senior-meal exemption?

No. The source focused on who resided within the institution, not only on accounting separation.

Did keeping transient guests out of the senior dining room solve the problem?

No. Occupancy by people under 62 defeated the institution-wide exclusive-residency requirement described.

Were the hotel's meals to transient guests taxable?

Yes. The letter records that the requester already understood those meals were taxable.

Citations and references

• California Revenue and Taxation Code section 6363.6 (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/550-0529.pdf

Original ruling text

550.0529

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
September 1, 1983
REDACTED TEXT
Your letter of July 11, 1983 has been referred to me for reply. You request our opinion as to the application of tax to your client's sale of meals and food products under the following proposed transaction. We understand that your client, REDACTED TEXT, is the sole proprietor of REDACTED TEXT. REDACTED TEXT is a boarding house facility with 284 rooms providing room and board for a flat monthly rate to permanent residents 62 years of age or older. Apparently, REDACTED TEXT’s sale of meals and food products to these permanent residents is exempt from tax pursuant to Section 6363.6 of the Revenue and Taxation Code. Your client intends to form a corporation and lease approximately 25 rooms from REDACTED TEXT. Essentially, this corporation plans to operate a hotel for transients on premises by subleasing to the general public the rooms obtained from REDACTED TEXT. The number of rooms leased to the hotel corporation will vary from time to time, depending upon the public's demand for such rooms. Although REDACTED TEXT and the hotel corporation will have separate and independent accounting and bookkeeping systems, the rooms and facilities used by REDACTED TEXT’s permanent residents will not be physically separated or partitioned from those rooms and facilities leased to the hotel corporation. A separate lounge area will be made available for the hotel's transient guests. Other common area facilities may be shared with REDACTED TEXT’s permanent residents, except for the dining room maintained by REDACTED TEXT. This dining room will not be available to the transient hotel guests, but will continue to be used exclusively for the serving of meals to REDACTED TEXT’s permanent guests. The hotel corporation will provide meals to their guests through a room service arrangement, although a continental breakfast may be served their guests in the hotel's lounge area. REDACTED TEXT’s staff will provide service to the hotel's transient guests on a subcontract basis to the hotel corporation. The hotel corporation may, however, eventually hire its own employees for this purpose. You are aware that the hotel's serving of meals to its guests is subject to tax. Your client wishes to confirm that the proposed lease transaction between the hotel corporation and REDACTED TEXT will not jeopardize REDACTED TEXT exemption from sales tax on the meals served to and consumed by its residents age 62 years or older who pay a flat monthly rate for room and board. Section 6363.6 of the Revenue and Taxation Code provides, in part, that there are exempted from sales and use taxes the gross receipts from the sale, storage, use, or other consumption in this state of meals and food products served to and consumed by residents and patients of any house or institution supplying board and room for a flat monthly rate and serving as a principal residence exclusively for persons 62 years of age or older.

Under the proposed transaction, REDACTED TEXT would lease a number of its rooms to a hotel corporation which would in turn sublease them to the general public. Therefore, it is highly probable that under this scheme persons under the age of 62 years would reside at REDACTED TEXT albeit on a transient or temporary basis. As provided by Section 6363.6, the house or institution claiming a tax exemption for the sale of meals to its residents must serve exclusively as a principal residence for persons 62 years or older. Clearly, the requirement for exclusive residency by persons 62 years of age or older is not met when the hotel corporation subleases rooms for occupancy by persons under the age of 62 years. Consequently, it is our opinion that the exemption from tax available under Section 6363.6 would not apply to REDACTED TEXT’s sale of meals to its residents under the proposed transaction between REDACTED TEXT and the hotel corporation. If you have any further questions, please write this office. Very truly yours, Charles J. Graziano Tax Counsel