Is a company that arranges and resells catered office lunches the taxable vendor, and can it buy the food with a resale certificate?

Plain-English summary

A company runs a corporate-lunch service: it connects restaurants, caterers, and food trucks with employers buying meals for staff. It interviews the customer, picks the vendors and menus, provides a weekly/monthly menu, and bills the customer one amount -- the food cost (no markup) plus a negotiated service fee. Its contracts run with the vendors on one side and the customers on the other; the customer has no contractual relationship with the food vendors. It asked whether it's the vendor that must collect tax, on which receipts, and whether it can give the food vendors resale certificates.

The Office of Counsel concluded:

• It's providing a taxable food service (Tax Law section 1105(d) -- food/drink sold by restaurants, caterers, or similar establishments, for off-premises consumption).
• It's the vendor, not an agent. It has the direct contract with the customers; the food vendors have no claim against the customers. There's no manifestation of agency with either side (Hooper Holmes; Custom Management). So it's reselling food services as principal.
• It must register (certificate of authority, section 1134) and collect tax on all charges it bills customers -- including its management/service fee and cancellation fees (an "other charge" within section 1105(d)) -- except qualifying gratuities (section 527.8: separately stated, designated as a gratuity, and paid over in full to employees; voluntary tips are always excluded).
• Separately state the tax (section 1132(a)). If the invoice just buries the tax it paid in the price, it must collect tax on the entire charge.
• No resale certificate for the food. A buyer of prepared food/drink for resale must pay tax at purchase (section 527.8(i)); the company pays its vendors the tax and then takes a credit on its own return for that tax against the tax it collects from customers.

What this means for you

Marketplaces / middlemen reselling food

If you contract directly with the customer and the underlying restaurant has no claim against that customer, you're the food vendor -- you register and collect 1105(d) tax on the whole bill, including your service/management fee and cancellation fees. "We just connect buyers and sellers" doesn't make it nontaxable.

Agency would change it -- but you have to actually be an agent

Without a real agency manifestation (acting on the customer's behalf, subject to its control), you're a reseller, not an agent. Don't assume a pass-through.

Food resale = pay tax then credit, not a resale certificate

Unlike most goods, prepared food/drink for resale can't be bought on a resale certificate. Pay the vendor's tax, collect from your customer, and take the credit. And separately state the tax on your invoice, or you'll owe tax on the entire amount.

Common questions

Q: We don't mark up the food -- just charge a service fee. Do we still collect tax?
A: Yes. You're the food-service vendor and must collect tax on the entire charge, including your service fee (and cancellation fees).

Q: Can we give the restaurants a resale certificate?
A: No. For prepared food and drink, you pay the vendors' sales tax and then take a credit on your return against the tax you collect from customers.

Q: Are tips taxable?
A: Voluntary gratuities aren't taxable. Mandatory gratuities are excluded only if separately stated, designated as a gratuity, and paid over in full to employees.

Q: What if we don't separately state the tax?
A: Then you must collect tax on the entire charge to the customer -- so separately state the tax on the invoice.

Citations and references

• Tax Law section 1105(d) (sales tax on food and drink sold by restaurants, caterers, and similar establishments)
• Tax Law section 1132 (duty to collect tax; separate statement; burden of proof)
• Tax Law section 1134 (certificate of authority; registration)
• 20 NYCRR 527.8 (gratuities; resale of food and drink)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(31)S
Sales Tax
July 16, 2015

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S120522A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTED
“Petitioner”. Petitioner asks whether it is a vendor responsible for collecting sales tax on the
receipts for the sale of prepared meals that are delivered to customers and, if so, on what receipts
must it collect sales tax. Petitioner also asks whether it may issue resale certificates to food
vendors if it is determined that Petitioner is reselling the vendors’ food services.
We conclude that Petitioner is providing a food service subject to sales and use tax under
Tax Law § 1105(d). As such, it is required to register as a vendor for purposes of New York
sales tax and obtain a certificate of authority. It must collect sales tax on all charges it bills to its
customers except itemized gratuities that are paid over to employees. Petitioner is reselling food
services subject to sales tax under Tax Law § 1105(d). However, it may not issue resale
certificates to the vendors from whom it purchases these services for resale. It must pay sales tax
to them and then take a credit for the sales tax paid on its sales and use tax returns.
Facts
Petitioner describes itself as providing a service that connects food service vendors such
as restaurants, caterers and food trucks with businesses that are seeking to purchase meals
(usually lunches) for their employees. After Petitioner is retained to provide services, it will
interview the customer to determine what type of meals its employees might enjoy and identify
potential problems such as employee food allergies.
Petitioner selects the food vendors that will provide the catered food to its business
customers. Petitioner usually selects the foods that the vendors will provide to the customer for a
given day. Petitioner makes these decisions based in part on what foods it believes the
customer’s employees would enjoy and in part on which foods vendors have the logistical
capability of filling a food order. While the customer has as much input into the selection of the
food provided as it wishes, customers rarely dictate the full details of a food order. In brief, part
of Petitioner’s service is its knowledge of the local food service industry, particularly of new
restaurants and caterers and of food establishments serving relatively exotic cuisine.
Petitioner provides the customer with a weekly or monthly menu that identifies the food
vendor that will provide catering on a given day and the foods that will be served on that day.

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July 16, 2015

Cancellations of orders are made through Petitioner. Cancellation penalties may be
imposed. If cancellation penalties are imposed, Petitioner remits cancellation penalties to the
appropriate food vendor.
Petitioner’s agreement with the customers purchasing food services does not indicate that
Petitioner acts as agent of the customer in the purchase of food. The agreement states that the
customer will “purchase catering through” Petitioner. The agreement obligates Petitioner to
carry liability insurance. The customer may have to pay a fee if it cancels the agreement before
the end of its term.
Petitioner bills a customer on a monthly basis for the food service. The invoice lists a
single amount that includes the cost of food services purchased by Petitioner. Petitioner does not
markup these purchases, but normally imposes an additional fee, which is negotiated with the
customer, for providing its services. The customer remits payment to Petitioner and may do so
by using a credit card, check or direct deposit.
Petitioner’s invoice to its customer contains a space for the customer to include a tip.
Petitioner does not impose any mandatory gratuity charges, nor do any of its food vendors
impose such a charge. Petitioner remits all tips to the designated vendor.
Petitioner’s customers have no contractual liability to the food vendors. The food
vendors’ contractual relationship is with Petitioner.
Petitioner enters a standard agreement with each food vendor with whom it does
business. This agreement states that Petitioner “connects providers of catering . . . to buyers of
catering.” Petitioner places food orders with the vendors on a daily basis. An order will list the
types and quantities of food and beverages to be delivered to a location on a certain day. While
the order form lists the address for Petitioner’s customer, the form does not identify Petitioner as
agent of the customer.
Under Petitioner’s agreement with a food vendor, a vendor’s confirmation of the order
constitutes a binding agreement to provide the menu exactly as enumerated on Petitioner’s order
form at the designated time, date, and location and for the vendor’s listed menu prices.
Petitioner contacts the vendor on each day that the vendor has contracted to furnish
catering services. If Petitioner does not receive confirmation from the vendor that it will provide
the food service agreed upon for the day, it reserves the right to cancel the order without charge.
If an order is canceled because of lack of a response from a food service vendor, Petitioner will
make arrangements with another vendor for the provision of food service.
The food vendors charge Petitioner based on their menu prices for the food, plus any
standard delivery or service charge that they impose. This amount is subject to several
adjustments, including a fee due Petitioner that is a percent of the total vendor’s retail charge.
Another adjustment is for the credit card merchant fee Petitioner must pay when a
customer pays Petitioner by credit card. This expense is allocated on a pro rata basis to the food

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Sales Tax
July 16, 2015

vendors that provided the customer with the food or beverages covered by the bill paid by credit
card. Other adjustments may be made to the bill to allow for issues with food orders.
Analysis
Tax Law § 1105(d)(i)(3) imposes sales tax on the receipts from every sale of food and
drink of any nature or of food alone, when sold in or by restaurants, taverns or other
establishments in this state, or by caterers, including in the amount of such receipts any cover,
minimum, entertainment or other charge made to patrons or customers in those instances where
the sale is for consumption off the premises of the vendor, except where food (other than
sandwiches) or drink or both are sold in an unheated state and are of a type commonly sold for
consumption off the premises and in the same form and condition, quantities and packaging, in
establishments which are food stores other than those principally engaged in selling foods
prepared and ready to be eaten. The food services being sold to Petitioner’s customers come
within the scope of this tax provision.
Petitioner is the vendor of the taxable food services sold to its customers. It has a direct
contractual relationship with its customers who are the purchasers of the food services. In
contrast, the vendors from whom Petitioner purchases food services have no contractual
relationship with the customers and have no legal claim against the customers for the amounts
owed by the customers for food services they purchase.
Petitioner is not acting as agent of the food vendors in the sale of their food services. Nor
is it acting as agent of the customers in their purchase of the food services. To establish an
agency relationship, there must be a manifestation that Petitioner consents to act on behalf of the
customer, subject to its control, and that the customer authorizes the fiduciary relationship. See,
Matter of Hooper Holmes v Wetzler, 152 AD2d 871, (3d Dept. 1989); see also Custom
Management Corp. v. New York State Tax Com'n, 148 A.D.2d 919 (3d Dept. 1989). No
manifestation of any agency exists in regard to Petitioner’s relationship with its customers or the
food vendors. Therefore, Petitioner is reselling food services.
Because Petitioner is selling taxable food services in New York, it is a vendor for
purposes of Tax Law §1101(b)(8). As such, it is required to obtain a certificate of authority from
the Department. See Tax Law § 1134. Tax Law § 1132 requires a vendor of taxable food and
beverages to collect sales tax on behalf of the State, and subdivision (c) of that section places the
burden of proof on the vendor to show that any particular charge is not taxable.
The sales tax imposed by Tax Law § 1105(d) on the receipts for food services includes
“in the amount of such receipts any cover, minimum, entertainment or other charge made to
patrons or customers.” (Emphasis added.) Petitioner’s full charge for its food service is subject
to sales tax. This would include any management or service fee that is included in the amount
billed to a customer for food service. See Matter of Stephen Gallagher, Inc., Tax Appeals
Tribunal, August 3, 2000; see also Custom Management Corp. supra.
Petitioner’s customers contract with Petitioner to purchase food service for a specified
period of time and may be required to pay a fee to terminate the contract early. A customer may
also have to pay a cancellation fee if it cancels a specific food order. Cancellation fees for food

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service come within the ambit of the phrase “other charge” in Tax Law § 1105(d)(i). Cf. 20
NYCRR § 541.9(c)(1)(c). Because the Petitioner has an ongoing contractual relationship with its
customers to provide food services, these cancellation fees are subject to sales tax as a
component of the food service.
Sales Tax Regulation § 527.8(1) addresses the taxability of gratuities:
Gratuities and service charges. Any charge, made to a customer, is taxable as a receipt
from the sale of food or drink unless:
(1) the charge is separately stated on the bill or invoice given to the customer;
(2) the charge is specifically designated as a gratuity; and
(3) all such monies received are paid over in total to employees.
Voluntary gratuities are always excluded from receipts subject to sales and use tax. Mandatory
gratuities are excludable from taxable receipts if the three criteria of the regulation are satisfied.
See TSB-M-09(13)S. Accordingly, Petitioner does not have to collect sales tax on any voluntary
gratuities tendered by its customers. Moreover, Petitioner will not be required to collect sales tax
on any mandatory gratuities, including those passed through from the vendors from whom it
purchased food services for resale, that satisfy the criteria of the regulations.
For taxable sales, Tax Law § 1132(a)(1) requires that sales tax on the price for a sale be
stated, charged, and separately shown on the sales slip, invoice, receipt, etc. given the customer.
Sales Tax Regulation § 532.1(b) elaborates on this statutory requirement:
(1)
Whenever the customer is given any sales slip, invoice, receipt, or other statement
or memorandum of the price, amusement charge, or rent paid or payable, the tax
shall be stated, charged and shown separately on the first of such documents given
to him.
(2)

Whenever the sales and use tax is separately stated on such document, it may be
referred to as tax.

(3)

The words “tax included” or words of similar import, on a sales slip or other
document, do not constitute a separate statement of the tax, and the entire amount
charged is deemed the sales price of the property sold or services rendered.

Petitioner should separately state the sales tax on the invoice given to its customer. If
Petitioner’s invoice does not include a separate charge for sales tax but merely includes in the
base amount the sales tax paid by Petitioner on its purchase of the food services, Petitioner must
collect sales tax on the total amount charged for the food services. See TSB-A-2002(6)S. Thus,
in the absence of a separate charge for sales tax on the invoice given to its customer, Petitioner
must collect sales tax on the entire charge to the customer.
Sales Tax Regulation § 527.8(i) provides, in part:
Resale. (1) Any person purchasing food or drink for resale as such is required to pay tax
thereon at the time of purchase.

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(2) When the food or drink is subsequently resold, the seller is required to collect tax
from the purchaser.
(3) The tax paid by the seller may be taken as a credit against the tax which the seller is
required to collect and remit on the subsequent sale. The credit is limited to the amount of
tax actually paid on the purchase by the seller of the food and drink resold.
Petitioner may not use a resale certificate to purchase prepared food and drink for resale; it must
pay sales tax to its supplier at the time of purchase. However, Petitioner may take a credit on its
sales tax return for the tax paid on such prepared food and drink.

DATED: July 16, 2015

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.