Were cancellation penalties and minimum meal charges treated the same when a retreat group's attendance fell below its reservation?

Plain-English summary

A nonprofit corporation operated camp and retreat facilities for eight religious groups and other tax-exempt organizations. Its contracts imposed a penalty when a user canceled or did not appear. When fewer attendees arrived than the contract specified, the user had to pay for 90% of the reserved meals.

The letter treated a complete cancellation or no-show payment as nontaxable service or damages because the operator transferred no tangible personal property.

The result changed when the operator actually served meals. If the contract priced meals at a fixed amount and attendance fell below the reservation, the entire minimum charge was treated as payment for the meals actually served. Tax applied to that full amount unless another exemption covered the meal sale.

Common questions

Was a fee for a fully canceled event taxable?

No. The source treated it as payment for service or damages with no property transfer.

What if some attendees arrived and meals were served?

The 90% minimum meal charge was treated as part of the taxable payment for the meals actually served.

Could a separate meal exemption still apply?

Yes. The letter expressly qualified its result where the sale was otherwise exempt.

Citations and references

• The complete supporting letter cites no numbered statute, regulation, or case.

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/550-0730.pdf

Original ruling text

550.0730

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

March 31, 1976
U--- C---, C---, and R--XXX --- Avenue
--- ---, CA XXXXX
SY --- XX XXXXXX
Attention:

Mr. E--- R. K--Accountant

Gentlemen:
Your letter dated March 21, 1976 and addressed to Mr. Gary Jugum has been referred to the undersigned for reply. We understand that you are a non-profit corporation formed by eight religious groups to operate camps and retreat facilities. You provide food and housing to members of your eight groups and to other taxexempt groups. In your operation, if a user signs an agreement for use of your facilities and then cancels, the user is obligated to pay a penalty fee. Similarly, if the number of attendees is smaller that the number specified in the contract, the user is required to pay for 90 percent of the meals specified. You inquire whether these penalty fees are subject to tax. The sales and use taxes are applied to sales of tangible personal property. The tax does not apply to sales of services nor to sales of tangible personal property as to which the legislature has enacted a specific exemption. We would consider that a charge made by you to a user who cancels or fails to appear as a charge for service or damages since there is not transfer of tangible personal property. However, where your contract provides for the sale of meals at a fixed amount per meal to users and you make a minimum meal charge when the number of attendees is smaller than the number specified in the contract, we would consider the entire amount to be payment for the meals actually served, and tax would apply to this entire charge unless the sale were otherwise exempt. If you have any further questions, please contact us again. Very truly yours,

H. L. Cohen
Tax Counsel
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