Does a caterer owe sales tax on tableware it rents to use in serving meals, even though it collects tax from customers on the full price of the catered meals?

Plain-English summary

Gates Circle Realty Corp., a caterer, provides catered meals at locations its customers choose. It rents plates, cups, saucers, glassware, bowls, creamers, flatware and ash trays to use in serving those meals, folds the rental cost into the price of the meals, and collects sales tax from customers on the total meal charge. It argued that because the tableware is a "component" of the meal transferred to the customer in the same (rented) form, and because customers already pay tax on the full meal, it shouldn't also owe tax on the tableware rental.

The Department held the caterer owes tax on the rental — and separately must collect tax on the full meal price.

• Catering is a taxed service under § 1105(d). Section § 1105(d)(i) taxes food and drink sold by caterers (and restaurants and similar establishments), and 20 NYCRR 527.8(f) provides that all charges by caterers who serve or assist in serving are taxable.
• The resale exclusion doesn't fit. A "retail sale" excludes property bought for resale "as such or as a physical component part" (§ 1101(b)(4)(i)(A)). The caterer isn't reselling the tableware — it rents it to use in performing its catering service, so this exclusion doesn't apply.
• The service-component exclusion doesn't fit either. Section § 1101(b)(4)(i)(B) can exclude property that becomes part of, or is transferred with, a taxable service — but only for services under § 1105(c)(1), (2), (3) and (5). Catering is taxed under § 1105(d), not § 1105(c), so this exclusion is inapplicable.
• Result: the tableware rental is a "purchase at retail" under § 1101(b)(1) and is taxable to the caterer. And the caterer must still collect tax on the total selling price of the catered meals under § 1105(d) and § 527.8(f).

What this means for you

A caterer can be taxed twice on the same items — that's the design, not a mistake. You pay tax on what you rent or buy to provide the catering service (tableware, linens, equipment), and you collect tax from your customer on the full price of the catered meal. Building the rental cost into the meal price doesn't convert your rental into a tax-free resale.

The resale exclusion is only for things you actually resell or that become part of the product. Items you use to perform a service — and keep or return, like rented dishware — aren't bought for resale. They're "purchases at retail" and taxable to you.

Which subdivision taxes your service matters. The "component part of a taxable service" exclusion in § 1101(b)(4)(i)(B) reaches only certain § 1105(c) services. Because catering is taxed under § 1105(d), that door is closed — a good reminder to check exactly which provision taxes your line of business before assuming an input is exempt.

Common questions

Q: My customers already pay tax on the full meal price. Why do I also owe tax on the rented dishes?
A: The two are separate. Collecting tax on the meal (§ 1105(d)) is your duty as a caterer; paying tax on the tableware is because you bought/rented it at retail to use in your service, not for resale.

Q: Isn't the tableware a "component" of the meal I transfer to the customer?
A: No. You use the tableware to serve, then keep or return it — you don't resell it or make it a physical part of the food. So the § 1101(b)(4)(i)(A) resale exclusion doesn't apply.

Q: Could I avoid the tax by itemizing the rental separately on the invoice?
A: No. Under 20 NYCRR 527.8(f), all charges by a caterer who serves or assists in serving are taxable, and your own rental of the tableware is a taxable purchase at retail regardless of how you bill the customer.

Citations and references

Statutes and regulations:

• Tax Law § 1105(d)(i) — tax on food and drink sold by caterers and similar establishments
• Tax Law § 1101(b)(1) — definition of "purchase at retail"
• Tax Law § 1101(b)(4) — "retail sale"; resale and service-component exclusions
• 20 NYCRR 527.8(f) — all charges by caterers who serve/assist in serving are taxable

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_50s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81(50)S
Sales Tax
November 17, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810804A

On August 4, 1981 a Petition for Advisory Opinion was received from Gates Circle Realty
Corp., 33 Gates Circle, Buffalo, New York 14209.
The issue raised is whether Petitioner is liable for payment of sales tax on rental charges for
plates, cups, saucers, glassware, bowls, creamers, flatware and ash trays.
Petitioner, a caterer, provides catered meals at locations chosen by the customers. Plates,
cups, saucers, glassware, bowls, creamers, flatware and ash trays are rented by Petitioner for use in
conjunction with the serving of the catered meals. The cost of the rented tableware is factored into
Petitioner's cost to arrive at the selling price of the meals. The customer is invoiced for the sale price
of the meals served and is taxed on the total amount.
Petitioner contends that the rental items are components of the meal, along with the food and
beverages served, and as such are transferred to the customer in the same form as they are acquired
(i.e. rental). Inasmuch as the customer pays tax on the total charge for the meals served, Petitioner
feels it should not be held liable for tax on the cost of these rental items included in the price of the
meal and on which tax is collected from the customer.
Section 1105(d)(i) of Tax Law imposes a tax on: "The receipts from . . . every sale of food
and drink of any nature or to 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 . . ."
The Sales and Use Tax Regulations state that: "All charges by caterers selling food or drink
who provide serving or assistance in serving, cooking, heating or other services after delivery, are
taxable. (Emphasis added) 20 NYCRR 527.8(f).
The term "purchase at retail" is defined in the Tax Law as "A purchase by any person for any
purpose other than those set forth in clauses (A) and (B) of subparagraph (i) of paragraph (4) of this
subdivision." Tax Law §1101(b)(1). Section 1101(b)(4) of the Tax Law defines "retail sale" as "(i)
A sale of tangible personal property to any person for any purpose, other than (A) for resale as such
or as a physical component part of tangible personal property, or (B) for use by that person in
performing the services subject to tax under paragraphs (1), (2), (3) and (5) of subdivision (c) of
section eleven hundred five where the property so sold becomes a physical component part of the
property upon which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the service subject
to tax."

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81(50)S
Sales Tax
November 17, 1981

Petitioner acquires by rental the property at issue for use in providing a catering service
pursuant to section 1105(d) of the Tax Law rather than for resale "as such or as a physical component
part of tangible personal property" as prescribed in section 1101(b)(4)(i)(A). Further, since
Petitioner's activities fall within the purview of section 1105(d), the provisions of section 1101(b)
(4) (i) (B) are inapplicable.
Accordingly, Petitioner is liable for payment of sales tax on the rental of tableware for use
in its catering activities as such rental constitutes a "purchase at retail" as defined in section
1101(b)(1). Additionally, Petitioner must collect tax on the total selling price to its customers for the
catered meals which are prepared and served. Tax Law §1105(d) and 20 NYCRR 527.8(f).

DATED: October 29, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau