Could a caterer issue resale certificates for event property it rented and then provided to customers during catered events?

Plain-English summary

A caterer sometimes supplied only food, drinks, and service staff, but more often also purchased flowers and favors or rented decorative props, lighting, sound systems, video equipment, and other event property. Rental companies delivered the equipment directly to the client and retrieved it after one use.

The caterer was the consumer of property it used to serve meals. Its entire catering charge was taxable, including amounts for dishes, silverware, glasses, chairs, tables, champagne fountains, punch bowls, and similar meal- or drink-service items. Because those items were used by the caterer rather than sold or rented to the customer, the caterer could not issue a resale certificate to acquire them tax-free.

A different rule applied when the customer specifically ordered property not customarily provided with food preparation or service and the caterer genuinely subleased it. Examples included artificial floral displays, lighting for guest speakers, and sound or video systems. The caterer could issue a resale certificate for that property, and the letter recommended removing qualifying subleased-item costs from the audit.

Common questions

Could the caterer issue a resale certificate for rented tables or champagne fountains?

No. The source treated those as property the caterer used in serving meals or drinks.

What property could qualify for sublease treatment?

Specifically ordered property not customarily provided with food service, such as decorative displays and speaker lighting or sound and video systems.

Did direct delivery from the rental company prove a sublease?

Not by itself. The item's use and whether it was customary meal-service property still controlled.

Citations and references

• California Sales and Use Tax Regulation 1603(h) (as cited)
• Business Taxes Law Guide Annotation 550.0380 (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/550-0850.pdf

Original ruling text

550.0850

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

June 14, 1989

Mr. R--- K. P--Vice President
T--- C---, Inc.
XXXX --- Street, #-X
--- ---, CA XXXXX

SR -- XX-XXXXXX

Dear Mr. P---:
This is in reply to your April 4, 1989 letter regarding the application of sales tax to charges to T--- C---, Inc., by lessor of tangible personal property. T--- provides the property to its clients in connection with events which T--- caters for the client. We understand that you receive a request for a bid for your various products and services from potential clients who present you with different situations. Sometimes you provide only food, beverages and service staff while the client arranges for all of the other event services, and the client rents property from rental companies. More frequently, the client requests you to purchase flowers, party favors, and other non-food items. You may also rent from the rental companies decorative props, lighting, sound systems, video systems, and other rented party hardware for the event. You note that each such rental is unique and includes only those particular items a client lacks for his or her event. The rental company delivers the rented equipment directly to the client for one-time use and returns the following day to pick up the equipment. You consider that your entire charge is subject to sales tax. You issue your resale certificate to rental companies and see nothing in Sales and Use Tax Regulation 1603, Taxable Sales of Food Products, to direct you otherwise. However, during a recent audit of T--- by the San Francisco District office, the audit staff disallowed your issuance of the resale certificates to the rental companies, and asserted use tax on your use of the property. When you cater an event, tax applies to your entire charge including your charge for the use of dishes, silverware, glasses, chairs, tables, champagne fountains, and other property you use in connection with your serving the meals. You cannot issue a resale certificate on your purchase or renting of such items, because you do not sell or rent such items to your clients. Rather, you use such items in connection with your sale of the meals. (Sales and Use Tax Reg. 1603, subd. (h).)

Mr. R--- K. P---

-2-

June 14, 1989
550.0850

On the other hand, it is our opinion that you may issue a resale certificate to a rental company to lease tangible personal property which you in turn sublease to your clients when the clients have specifically ordered such property and the property is property not customarily provided in connection with the preparation and furnishing of food. Such property could be decorative props, such as artificial floral displays; lighting for guest speakers; sound systems; and video systems. (Cf. BTLG Annot. 550.0380.) We do not know what you mean by “other rented party hardware”. If the party hardware is an item such as a champagne fountain or a punch bowl, which would be customarily used by you in serving meals or drinks, you are the consumer of such an item, and you may not issue a resale certificate to the rental company. By a copy of this letter, we are recommending that the audit staff delete from the audit the cost of items that you subleased to your clients in accordance with this letter. Very truly yours,

Ronald L. Dick
Tax Counsel

RLD:sr
bc:

--- --- – District Administrator
Mr. E. L. Sorensen, Jr.