Did a contract label saying a caterer sold employee meals to an employer for resale establish that the transaction qualified as a sale for resale?

Plain-English summary

An existing tax-service annotation said an employer buying employee meals from an outside caterer could treat the purchase as a sale for resale and give the caterer a resale certificate.

Tax counsel said that statement needed a qualification. The Board had always examined transactions labeled as sales for resale and asserted tax when the facts instead showed a retail sale.

The memorandum cited Automatic Canteen, where the court analyzed both the employer-caterer contracts and how the caterer performed them. A resale characterization that was only form, not substance, did not control.

Accordingly, a contract label alone did not establish a sale for resale. If the substance showed the caterer made the retail meal sale, the caterer's gross receipts were subject to sales tax.

Common questions

Was a resale certificate conclusive?

No. The source says the Board could look through the stated form to the transaction's actual substance.

What facts did the cited approach examine?

The contracts between the caterer and employers and the caterer's performance under them.

Citations and references

• Automatic Canteen Company of America v. State Board of Equalization, 238 A.C.A. 434 (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/550-0820.pdf

Original ruling text

State of California

Board of Equalization

550.0820
Memorandum
To:

Headquarters – Principal Tax Auditor

From:

Tax Counsel (GAT) - Headquarters

Date:

August 30, 1966

The question has been raised as to whether California Tax Service annotation 1569.45, 5-550, contains a complete statement of the law. The annotation states, “Employer engaging outside caterer to prepare and furnish employee meals for which employer charges employees is purchasing meals for resale, can give resale certificate to caterer.” At all times the board has scrutinized transaction designated in contracts by the parties as sales for resale, and has asserted the tax when it determined that the transactions were, in fact, retail sales. The California District Court of Appeal followed this procedure in reaching its decision in Automatic Canteen Company of America v. State Board of Equalization, 238 A.C.A. 434. In analyzing certain contracts between a caterer and employers and the caterer’s performance under the contracts, the court found that attempts to characterize the transactions as sales for resale to the employers were merely matters of form and not of substance. In view of the foregoing, annotation 1569.45 should be qualified with the caveat that, although a transaction between a caterer and an employer is designated in a contract between the parties as a sale of meals by the caterer for resale by the employer to his employees, the board may look through the form of the transaction to determine whether, in fact, the sale by the caterer is a sale for resale. If the substance of the transaction is found by the board to be a retail sale by the caterer, the gross receipts therefrom are subject to sales tax. GAT:hm