Was a restaurant employee's $1 payroll deduction for meals a taxable specific charge when a union agreement provided either two meals or $1 instead?

Plain-English summary

A restaurant's union agreement entitled non-bartender employees working a six- or eight-hour shift to two meals or $1 instead. The employer added the $1 daily meal allowance to each employee's earnings and deducted $1 when the employee ate the meals, regardless of their actual retail value.

Tax counsel treated the $1 deduction as a specific charge subject to tax. The union agreement fixed the meal value, and the employee was specifically charged that contractual amount.

The letter is dated July 30, 1965 but refers to an interpretation of Ruling 53 dated December 11, 1965. Because that cited date falls after the letter, this page reports the conflict exactly as printed rather than inferring which date is wrong.

Common questions

Did the meals' actual menu value control?

No. The employer charged the $1 value established by the union agreement regardless of actual retail value.

Why was the payroll deduction taxable?

The employee received a $1 allowance and was specifically charged $1 when meals were consumed.

Citations and references

• Ruling 53 interpretation (as cited; the source prints December 11, 1965, which conflicts with the July 30, 1965 letter date)

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/550-1400.pdf

Original ruling text

550.1400

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
July 30, 1965
Gentlemen:
This is in reply to your letter of July 9 regarding the application of sales tax with respect to meals served by a restaurant to its employees. The union agreement provides: "All employees, other than Bartenders, shall be entitled to two meals per day for an 8-hour or 6-hour shift or $1.00 in lieu thereof." It is the employers' practice to pay each employee the $1 meal allowance each day as an addition to earnings, and to deduct this amount when meals are consumed by employees, without regard to the actual retail value of such meals. Inasmuch as the employees are allowed $1 for meals in the union agreement and are specifically charged $1 for meals, that amount is a specific charge which is subject to tax as indicated in the third paragraph of the interpretation of Ruling 53 dated December 11, 1965. Since the value of the meals is set by union contract, and the employees are specifically charged the amount set by the contract, the last paragraph of the interpretation has no application. Very truly yours, George A. Trigueros Associate Tax Counsel GAT:o'b [lb]