Could a caterer exclude separately stated amounts paid to temporary servers, bartenders, and dishwashers from taxable gross receipts?

Plain-English summary

A caterer occasionally arranged outside workers to serve food, tend bar, and wash dishes for customer events. The workers were temporary, and their service charges appeared separately on customer bills.

Tax counsel concluded that the charges were still part of the caterer's gross receipts from selling food. Section 6011.5, as quoted in the letter, included services that were part of the sale and receipts of any kind. Separate billing and the caterer's failure to withhold payroll taxes did not by themselves remove the labor from the sale.

The key factual connection was the caterer's involvement: if the caterer solicited, engaged, or hired the outside help—even as an accommodation for the customer—the resulting wages were part of the charge for selling the food. Counsel recommended no adjustment to the assessment.

The letter distinguished the cited Anders tip case. This dispute involved a fixed customer obligation based on wage rates and hours worked, not whether a payment was a voluntary gratuity or a mandatory exaction.

Common questions

Did separately stating the temporary-labor charge make it nontaxable?

No. The source said separate billing did not prevent the charge from being gross receipts.

Did the workers' temporary or independent status control?

No. Counsel focused on the caterer's role in arranging or hiring them as part of serving the food.

Was this a final Board ruling?

The source is a tax-counsel recommendation of no adjustment and offers a Board hearing if requested; it does not include a later final decision.

Citations and references

• California Revenue and Taxation Code section 6011.5 (as cited)
• Anders v. State Board of Equalization, 82 Cal. App. 2d 88 (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/550-0920.pdf

Original ruling text

STATE OF CALIFORNIA

550.0920

STATE BOARD OF EQUALIZATION

February 15, 1967

--- --- ----- --- ----- --- --Dear Mr. --- ---:
This refers to the petition for redetermination filed on behalf of “R”. We have considered all the facts relating to the use of outside help in serving food prepared by your client, and we have checked the case of Anders v. State Board of Equalization, 82 Cal. App. 2d 88, to see if it is analogous to the “R” matter. To the extent that the case involved the question of whether so-called tips were the seller’s gross receipts, there is a similarity. In “R” we are to determine whether the wages paid to outside help are considered your client’s gross receipts. We all agree that the outside help is temporary. They are only occasionally employed. There are no doubt several circumstances giving rise to the hiring of outside help. Your client, in figuring the food costs per person, might recommend what help is needed to make the affair a success. It was stated that he offered to make arrangements to obtain the needed or recommended help if the customer wanted him to do so. All of these facts do not dictate a finding that the wages paid to the outside help are not gross receipts from serving the meals. Gross receipts, as defined in Section 6011.5 of the Sales and Use Tax Law, mean the total amount of the sale valued in money. The total amount of the receipts from a sale includes “any” services that are a part of the sale, and “all” receipts of any kind. Clearly, part of the charges for serving the food includes a charge for the services. Your client’s billings to the customer show that “service charges” are billed separately. This does not necessarily preclude them from being gross receipts to your client. The fact that your client does not withhold any sum for payroll tax, etc., purposes does not dictate a finding that the wages are not a charge for serving the food or are not his gross receipts.

Mr. --- ---

-2-

February 15, 1967
550.0920

If your client, for whatever reason, solicits, engages, or hires outside help, even as an accommodation for the customer, he becomes sufficiently involved with the independent contractor so obtained that the wages paid are a part of the charge for selling the food and a part of your client’s gross receipts. We give considerable weight to the incident where one of the outside help was injured and the customer’s insurance company prevailed in an action to determine whether the customer’s insurance company or your client’s insurance company should be liable for payments resulting from the injury. We think if the court had found that the injured party had been an employee of the customer, your client’s insurance company would not have been liable. The Anders case involved tips, and whether tips given by customers are gross receipts from the sale. One question regarding tips and gross receipts turns on whether the tip is an exaction or a gratuity. The Board has held that in cases involving private country clubs which add a certain percent to the members’ food charge and label it tip or service charge, the added sum is gross receipts from the sale of the food even if the club management turns the added sum over to the employee performing the service. This is because the added sum is automatic and the member does not have any choice in whether it should be added. In other words, it is an exaction. In the “R” matter, we are not confronted with the question of whether any of the wages are a gratuity or an exaction. The sum we are concerned with is an obligation of the customer fixed by the wage scale and the hours worked. To this extent the Anders case is not analogous. Summarily, it is our opinion that the wages paid to outside help that served food, tended bar, washed dishes, etc., and which was arranged for by your client, are gross receipts from the sale of food regardless of how the payments were made or the reason why your client made the arrangements for the help. We are, therefore, recommending that there be no adjustment. If, after considering our recommendation and the reasons therefore, your client wishes to have the matter heard by the Board, please notify us in writing within three weeks. Very truly yours,

Robert H. Anderson
Associate Tax Counsel
RHA:dse

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