Can a caterer that prepares complete airline meals buy the paper containers, cups, foil, utensils, and bags used to package the meals tax-free as purchases for resale?

Plain-English summary

Sky Chefs prepares complete meals and sells them to airlines. To package each meal it buys paper containers, cups, foil, silverware, sandwich bags, and similar items. Sky Chefs argued these items become an integral part of the complete meal — a prerequisite to the sale — and so it should be able to buy them tax-free as purchases for resale. It also argued it isn't a caterer because it delivers only cold, unheated complete meals with no service at final consumption.

The Department disagreed on every point: the packaging purchases are taxable.

• Not resold "as such." Under § 1101(b)(4), a purchase for resale must be resold "as such" (or as a physical component part). The airlines didn't buy the containers and utensils as such — they received them merely as an incident to the meals, with no separate charge. So Sky Chefs used or consumed the items itself.
• Not a physical component part. The items are never "so intimately conjoined" with the food as to become part of it.
• The meals aren't taxable TPP anyway. Food and drink sold as described in § 1105(d)(i) (by restaurants, taverns, or caterers) is a hybrid of property and service taxed under § 1105(d), not the tangible-personal-property tax of § 1105(a). Because the meals aren't TPP, there is nothing for the resale exclusion to attach to.
• Sky Chefs is a caterer. Under 20 NYCRR 527.8(f)(2), a caterer is still a caterer even when it "merely deliver[s] the items purchased and offer[s] no other services after delivery."
• The packaging exemption fails. § 1115(a)(19) exempts materials used to package tangible personal property for sale; since the meals aren't TPP, it doesn't apply. The special § 1105(d)(ii) airline exemption covers airlines as purchasers of food and drink — not Sky Chefs' packaging supplies.

What this means for you

"It becomes part of what I sell" isn't enough for the resale exclusion. New York asks whether the customer actually buys that item as such, for separate consideration. Napkins, cups, foil, and utensils handed over as an incident to a meal are consumed by the seller, not resold — so the seller pays tax on them.

If you're a caterer, your prepared food is taxed under § 1105(d), not as tangible personal property. That reclassification matters: exemptions and exclusions written for tangible personal property (including the resale exclusion and the § 1115(a)(19) packaging exemption) don't reach food that is taxed as a hybrid catering sale.

Delivery-only doesn't get you out of "caterer." Section 527.8(f)(2) treats a business that merely drops off prepared food as a caterer just the same as one that sets up and serves. You can't escape catering treatment by cutting the on-site service.

Common questions

Q: When can a food business buy packaging tax-free for resale?
A: When the packaged product is itself tangible personal property sold at retail and the packaging materials qualify under § 1115(a)(19). For a caterer whose prepared meals are taxed under § 1105(d) rather than as TPP, that path is closed — the packaging is a taxable purchase.

Q: Why didn't the airline food exemption help Sky Chefs?
A: The § 1105(d)(ii) exemption runs to airlines as purchasers of food and drink; it doesn't exempt a caterer's own purchases of containers and utensils used to make and deliver the meals.

Q: We deliver cold, sealed meals and never serve them — are we really caterers?
A: On these facts, yes. Section 527.8(f)(2) says a caterer that merely delivers with no further service is still a caterer, so its prepared-meal sales are taxed under § 1105(d).

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — taxes receipts from retail sales of tangible personal property
• Tax Law § 1101(b)(4) — defines "retail sale" and the resale exclusion ("as such" or as a physical component part)
• Tax Law § 1105(d)(i) — taxes food and drink sold by restaurants, taverns, and caterers
• Tax Law § 1105(d)(ii) — exemption for airlines purchasing food and drink
• Tax Law § 1115(a)(19) — exempts materials used to package tangible personal property for sale
• 20 NYCRR 527.8(f)(2) — taxes sales by caterers, including where the caterer only delivers

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_127s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80(127)S
Sales Tax
July 15, 1980

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800408A

On April 8, 1980, a Petition for Advisory Opinion was received from Sky
Chefs, Division of Flagship International, Inc. c/o American Airlines, Inc., P.O.
Box 61616 DFW Airport, Texas 75261.
The issue raised is whether Petitioner's purchases of paper containers,
cups, foil, silverware, bags, salad and sandwich bags, etc., which it utilized
to package food and beverage as complete meals sold to airlines constituted
purchases for resale.
Petitioner prepares complete meals for sale to airlines, its service
including both the preparation and packaging of the meals. The meals as sold to
the airlines include ". . . foil and saran wrap where necessary, beverages and
containers for such drinks, utensils, sanitary wrapping and accessories."
Petitioner asserts that these items ". . . become an integral part of the
complete meal . . .[,] are a prerequisite to the sale of the meal to an airline
. . . and none of the items are included merely to facilitate the sale nor
subsequently reused by Sky Chefs." Petitioner asserts that it is not engaged in
the catering business because it provides only complete meals sold in an unheated
state and because it provides no service ". . . in the distribution of the meal
for final consumption." The total price charged for a complete meal includes "
. . . the underlying costs of the items comprising the complete meal, together
with an allocated portion of the Company's overhead and reasonable profit
margin."
Section 1105(a) of the Tax Law, contained in article 28, imposes a State
sales tax on the ". . . receipts from every retail sale of tangible personal
property, except as otherwise provided in this article." Section 1101(b)(4)
defines a retail sale, in relevant part, as 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 . . . ."
Therefore, Petitioner's customers did not purchase the containers, cups,
sandwich bags, etc. "as such" but rather received these items merely as an
incident to the purchase of the meals. There was no consideration separately paid
with respect to such items. It follows that the items were used or consumed by
Petitioner in preparing and delivering the meals, and were not resold "as such"
to its customers.
In addition, Petitioner did not sell the items in question as a "physical
component part of tangible personal property." These items can at no point be
said to have been so intimately conjoined with the food and drink sold by it as
to have become a physical component part thereof. Further, even were the items
in question considered to have become physical component parts of the food and
drink sold by Petitioner, the sale for resale exclusion would still not be
applicable. Food and drink sold in a manner described in section 1105(d)(i) of
the Tax Law is not tangible personal property for purposes of the sales tax
provisions of the Tax Law. Section 1105(d)(i) refers, in relevant part, to sales
". . . 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 . .
. (3) 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 (A)
sold in an unheated state and, (B) are of a type commonly sold for consumption
JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-80(127)S
Sales Tax
July 15, 1980
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 sale of food and drink in this
manner is considered to be a hybrid transaction involving both the sale of
tangible personal property and a service, and the receipts from such sales are
subject to a tax imposed under section 1105(d) rather than 1105(a) of the Tax
Law. The latter is applicable only to sales of tangible personal property.
Inasmuch as Petitioner's sales are of the type here described, the subject of
such sales is not tangible personal property. Petitioner's contention that it is
not a caterer, and therefore that its sales are not described in section
1105(d)(i), because it provides no service ". . . in the distribution of the meal
for final consumption" is not tenable. Section 527.8(f)(2) of Title 20 of the
Official Compilation of Codes, Rules and Regulations of the State of New York,
for example, relates to the taxation of sales by caterers both where services are
supplied and ". . . where the caterers merely deliver the items purchased and
offer no other services after delivery . . . ." Clearly, a caterer remains such
irrespective of whether or not it provides services subsequent to delivery.
The force of the foregoing is in no way lessened by the fact that a special
exemption is provided in section 1105(d)(ii) for airlines making purchases of
food and drink sold in a manner described in section 1105(d)(i). That exemption
is applicable to airlines as a species of purchaser of food and drink, and not
to the category of prepared meals. It should be noted, in addition, that inasmuch
as the prepared meals sold by Petitioner do not constitute tangible personal
property, the exemption from sales tax provided for in section 1115(a)(19) of the
Tax Law is not applicable. That exemption applies to certain materials used by
a vendor in packaging or preparing tangible personal property for sale.

Dated: June 30, 1980

s/ LOUIS ETLINGER
Deputy Director
Technical Services Bureau