When could a hotel's catering for a group connected with the federal government qualify as an exempt federal purchase?

Plain-English summary

A hotel asked whether catering charges for federal groups and several other organizations were taxable. The opinion began with the general rule that a caterer's entire charge was taxable, including food, equipment, planning, and serving labor, unless a statute specifically exempted the sale.

An official purchase by the United States or an unincorporated federal agency or instrumentality—including the identified Air Force, Department of Defense, or American National Red Cross—could be exempt. The hotel had to prove both that the purchase was official and that the group was authorized to buy on the federal entity's behalf. Purchase orders, payment vouchers, or similar documentation generally satisfied that requirement. Without sufficient proof, the sale was treated as a taxable sale to individual employees.

The letter found no applicable exemption for the listed churches, religious organizations, California or other states, school districts, nonprofits, or cities. Catering sold to insurance companies was also taxable because the sales tax was imposed on the hotel as retailer, not on the purchaser.

Common questions

Was a group's federal affiliation enough?

No. The hotel needed evidence of an official federal purchase and the group's purchasing authority.

What records could support the exemption?

The source names appropriate purchase orders, payment vouchers, or other documentation showing the group bought on behalf of the federal instrumentality.

Were nonprofit or state-government customers automatically exempt?

No. The letter found no sales-tax exemption for the other listed organizations.

Citations and references

• California Revenue and Taxation Code sections 6006(a), 6007, 6051, and 6381 (as cited)
• California Sales and Use Tax Regulations 1603 and 1614 (catering and federal-purchase documentation, as cited)
• California Civil Code section 1656.1 (tax reimbursement, as cited later in the source; the first-page 1651.1 is preserved below)

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/550-0809-300.pdf

Original ruling text

550.0809.300

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHN KLEHS
First District, Hayward

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-3723

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego

July 3, 1996
Re: REDACTED TEXT

BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

E. L. SORENSEN, JR.
Executive Director

Dear REDACTED TEXT,
Your letter dated April 4, 1996, to Mr. David H. Levine, Supervising Tax Counsel, has been referred to me for response. You ask whether the REDACTED TEXT charges for catering functions for groups from the following organizations are subject to tax: 1) federal government (i.e. Air Force, Department of Defense, Red Cross); 2) churches and religious organizations; 3) insurance companies; 4) State of California; 5) other states; 6) California school districts; 7) out-of-state school districts; 8) nonprofit organizations; and 9) cities. DISCUSSION Retail sales of tangible personal property in California are subject to sales tax, measured by the gross receipts, unless the sale is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6051.) The term "sale" means any transfer of title or possession of tangible personal property for consideration. (Rev. & Tax. Code § 6006(a).) A sale at retail means a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) Although the retailer owes the sales tax, the retailer may collect sales tax reimbursement from the purchaser if the contract of sale so provides. (Civ. Code § 1651.1.) A caterer is a person engaged in the business of serving meals, food, and drinks on the premises of the customers or on premises supplied by the customers. (Reg. 1603(h).) Tax applies to the entire charge made by the caterer for serving meals, food, and drinks, including all charges for food, use of dishes, silverware, glasses, chairs, and tables used in conjunction with serving meals, as well as the charge for the labor of planning and serving the meals, whether performed by the caterer or by the caterer's employees or subcontractors. (Id.) Similarly, tax applies to the sales of meals or hot prepared food products furnished by restaurants whether served on or off the premises. (Reg. 1603(a).) Tax applies to the entire charge by REDACTED TEXT for catering functions for each of the organizations listed above unless the sale is specifically exempt from taxation by statute. With regard to sales to groups from churches and religious organizations, State of California, other states, California school districts, out-of-state school districts, nonprofit organization, and cities, there is no applicable statutory exemption for the sales by REDACTED TEXT to these organizations. Therefore, REDACTED TEXT sales to such organizations are subject to tax. (See BTLG Annots. 390.0020 (8/24/64), 390.0040 (2/20/63), 530.0260 (3/23/60).)

Additionally, REDACTED TEXT sales to insurance companies are also subject to tax. Insurance companies doing business in this state are liable for an annual tax imposed by California Constitution Article XIII, Code section 28, in lieu of all other taxes and licenses upon such insurers and their property, with certain exceptions not applicable herein. (See also Rev. & Tax Code § 12102.) However, sales tax is imposed on the retailer and not the purchaser. Therefore, sales tax applies to REDACTED TEXT retail sales to insurance companies and REDACTED TEXT may collect sales tax reimbursement from the insurance company if the contract of sales so provides. (See Rev. & Tax. Code § 6051; see also Civ. Code
§ 1656.1.)
Lastly, Revenue and Taxation Code section 6381 provides that sales to the United States and to its unincorporated agencies and instrumentalities such as the Air Force, Department of Defense and American National Red Cross are exempt from tax. However, in order for REDACTED TEXT sales to groups from a United States instrumentality to be exempt, REDACTED TEXT must substantiate that the purchases are official purchases of the United States instrumentality and that the groups are authorized by the United States instrumentality to purchase the catering from REDACTED TEXT on behalf of the United States instrumentality. Copies of appropriate purchase orders, payment vouchers or other appropriate documentation showing that the purchases are made by the groups on behalf of the United States instrumentality generally meet this requirement. (Reg. 1614.) If REDACTED TEXT is unable to acquire sufficient proof that the purchases are official purchases of a United States instrumentality, the sales to such groups are regarded as sales to individual employees of such organizations and are properly subject to tax. If you have any further questions, please write again. Sincerely, Sophia H. Chung Tax Counsel SHC:rz