(a) Restaurants, Hotels, Boarding Houses,
Soda Fountains, and Similar Establishments.
(1) Definitions.
(A) Boarding House. The term "boarding house"
as used in this regulation means any establishment regularly serving meals, on
the average to five or more paying guests. The term includes a "guest home,"
"residential care home," "halfway house," and any other establishment providing
room and board or board only, which is not an institution as defined in
Regulation 1503 and section
6363.6
of the Revenue and Taxation Code. The fact that guests may be recipients of
welfare funds does not affect the application of tax. A person or establishment
furnishing meals on the average to fewer than five paying guests during the
calendar quarter is not considered to be engaged in the business of selling
meals at retail.
(B) American Plan
Hotel. The term "American Plan Hotel" as used in this regulation means a hotel
which charges guests a fixed sum by the day, week, or other period for room and
meals combined.
(C) Complimentary
Food and Beverages. As used in this subdivision (a), the term "complimentary
food and beverages" means food and beverages (including alcoholic and
non-alcoholic beverages) which are provided to transient guests on a
complimentary basis and:
1. There is no
segregation between the charges for rooms and the charges for the food and
beverages on the guests' bills, and
2. The guests are not given an option to
refuse the food and beverages in return for a discounted room
rental.
(D) Average
Retail Value of Complimentary Food and Beverages. The term "average retail
value of complimentary food and beverages" (ARV) as used in this regulation
means the total amount of the costs of the complimentary food and beverages for
the preceding calendar year marked-up one hundred percent (100%) and divided by
the number of rooms rented for that year. Costs of complimentary food and
beverages include charges for delivery to the lodging establishment but exclude
discounts taken and sales tax reimbursement paid to vendors. The 100% markup
factor includes the cost of food preparation labor by hotel employees, the fair
rental value of hotel facilities used to prepare or serve the food and
beverages, and profit.
(E) Average
Daily Rate. The term "average daily rate" (ADR) as used in this regulation
means the gross room revenue for the preceding calendar year divided by the
number of rooms rented for that year. "Gross room revenue" means and includes
the full charge to the hotel customers but excludes separately stated occupancy
taxes, revenue from contract and group rentals which do not qualify for
complimentary food and beverages, and revenue from special packages (e.g., New
Year's Eve packages which include food and beverages as well as guest room
accommodations), unless it can be documented that the retail value of the food
and beverages provided as a part of the special package is 10% or less of the
total package charge as provided in subdivision (a)(2)(B). "Number of rooms
rented for that year" means the total number of times all rooms have been
rented on a nightly basis provided the revenue for those rooms is included in
the "gross room revenue." For example, if a room is rented out for three
consecutive nights by one guest, that room will be counted as rented three
times when computing the ADR.
(2) Application of Tax.
(A) In General. Tax applies to sales of meals
or hot prepared food products (see (e) below) furnished by restaurants,
concessionaires, hotels, boarding houses, soda fountains, and similar
establishments whether served on or off the premises. In the case of American
Plan Hotels, special packages offered by hotels, e.g., a New Year's Eve package
as described in subdivision (a)(1)(E), and boarding houses, a reasonable
segregation must be made between the charges for rooms and the charges for the
meals, hot prepared food products, and beverages. Charges by hotels or boarding
houses for delivering meals or hot prepared food products to, or serving them
in, the rooms of guests are includable in the measure of tax on the sales of
the meals or hot prepared food products whether or not the charges are
separately stated. (Caterers, see (i) below.) Sales of meals or hot prepared
food products by restaurants, concessionaires, hotels, boarding houses, soda
fountains, and similar establishments to persons such as event planners, party
coordinators, or fundraisers, which buy and sell on their own account, are
sales for resale for which a resale certificate may be accepted. (See
subdivision (i)(3)(C)2.)
Soufflé cups, straws, paper napkins,
toothpicks and like items that are not of a reusable character which are
furnished with meals or hot prepared food products are sold with the meals or
hot prepared food products. Sales of such items for such purpose to persons
engaged in the business of selling meals or hot prepared food products are,
accordingly, sales for resale.
(B) Complimentary Food and Beverages. Lodging
establishments which furnish, prepare, or serve complimentary food and
beverages to guests in connection with the rental of rooms are consumers and
not retailers of such food and beverages when the retail value of the
complimentary food and beverages is "incidental" to the room rental service
regardless of where within the hotel premises the complimentary food and
beverages are served. For complimentary food and beverages to qualify as
"incidental" for the current calendar year, the average retail value of the
complimentary food and beverages (ARV) furnished for the preceding calendar
year must be equal to or less than 10% of the average daily rate (ADR) for that
year.
If a hotel provides guests with coupons or similar
documents which may be exchanged for complimentary food and beverages in an
area of the hotel where food and beverages are sold on a regular basis to the
general public (e.g., a restaurant), the hotel will be considered the consumer
and not the retailer of such food and beverages if the coupons or similar
documents are non-transferable and the guest is specifically identified by
name. If the coupons or similar documents are transferable or the guest is not
specifically identified, food and beverages provided will be considered sold to
the guest at the fair retail value of similar food and beverages sold to the
general public. In the case of coupons redeemed by guests at restaurants not
operated by the lodging establishment, the hotel will be considered the
consumer of food and beverages provided to the hotel's guests and tax will
apply to the charge by the restaurant to the hotel.
Lodging establishments are retailers of food and beverages
which do not qualify as "incidental" and tax applies as provided in subdivision
(a)(2)(A) above. Amounts paid by guests for food and beverages in excess of a
complimentary allowance are gross receipts subject to the tax. Lodging
establishments are retailers of otherwise complimentary food and beverages sold
to non-guests.
In the case of hotels with concierge floor, club level or
similar programs, the formula set forth above shall be applied separately with
respect to the complimentary food and beverages furnished to guests who
participate in the concierge, club or similar program. That is, the concierge,
club or similar program will be deemed to be an independent hotel separate and
apart from the hotel in which it is operated. The ADR and the retail value of
complimentary food and beverages per occupied room will be computed separately
with respect to the guest room accommodations entitled to the privileges and
amenities involved in the concierge, club or similar program.
The following example illustrates the steps in determining
whether the food and beverages are complimentary:
| FORMULA: |
ARV / ADR [LESS THAN
EQUAL TO] 10% |
Average Daily Rate (ADR):
|
Room
Revenue |
$9,108,000 |
|
|
|
Rooms Rented |
74,607 |
|
|
|
ADR ($9,108,000 /
74,607) |
$122.08 |
|
Average Retail Value of Complimentary Food and
Beverages (ARV):
|
Complimentary Food
Cost |
$169,057 |
|
|
|
|
Complimentary Beverage
Cost |
52,513 |
|
|
|
|
Total |
$221,570 |
|
|
Add 100%
Markup |
221,570 |
|
|
|
|
Average Retail
Value |
$443,140 |
|
|
ARV per occupied room ($443,140 / 74,607) $5.94
Application of Formula: $5.94 / $122.08 = 4.87%
In the above example, the average retail value of the
complimentary food and beverages per occupied room for the preceding calendar
year is equal to or less than 10% of the average daily rate. Therefore, under
the provisions of this subdivision (a)(2)(B), the complimentary food and
beverages provided to guests for the current calendar year qualify as
"incidental." The lodging establishment is the consumer and not the retailer of
such food and beverages. This computation must be made annually.
When a lodging establishment consists of more than one
location, the operations of each location will be considered separately in
determining if that location's complimentary food and beverages qualify as
incidental.
(C) "Free"
Meals. When a restaurant agrees to furnish a "free" meal to a customer who
purchases another meal and presents a coupon or card, which the customer
previously had purchased directly from the restaurant or through a sales
promotional agency having a contract with the restaurant to redeem the coupons
or cards, the restaurant is regarded as selling two meals for the price of one,
plus any additional compensation from the agency or from its own sales of
coupons. Any such additional compensation is a part of its taxable gross
receipts for the period in which the meals are served.
Tax applies only to the price of the paid meal plus any
such additional compensation.
(b) "Drive-Ins." Tax applies to sales of food
products ordinarily sold for immediate consumption on or near a location at
which parking facilities are provided primarily for the use of patrons in
consuming the products purchased at the "drive-in" establishment, even though
such products are sold on a "take out" or "to go" order and are actually
packaged or wrapped and taken from the premises of the retailer. Food products
when sold in bulk, i.e., in quantities or in a form not suitable for
consumption on the retailer's premises, are not regarded as ordinarily sold for
immediate consumption on or near the location at which parking facilities are
provided by the retailer. Accordingly, with the exception of sales of hot
prepared food products (see (e) below) and sales of cold food under the 80-80
rule (see (c) below), sales of ice cream, doughnuts, and other individual food
items in quantities obviously not intended for consumption on the retailer's
premises, without eating utensils, trays, or dishes and not consumed on the
retailer's premises, are exempt from tax. Any retailer claiming a deduction on
account of food sales of this type must support the deduction by complete and
detailed records.1
(c) Cold Food Sold on a "Take-Out" Order.
(1) General.
(A) Seller Meeting Criteria of 80-80 Rule.
When a seller meets both criteria of the 80-80 rule as explained in subdivision
(c)(3) below, tax applies to sales of cold food products (including sales for a
separate price of hot bakery goods and hot beverages such as coffee) in a form
suitable for consumption on the seller's premises even though such food
products are sold on a "take-out" or "to go" order. Sales of cold food products
which are suitable for consumption on the seller's premises are subject to the
tax no matter how great the quantity purchased, e.g., 40 one-half pint
containers of milk. Except as provided elsewhere in this regulation, tax does
not apply to sales of food products which are furnished in a form not suitable
for consumption on the seller's premises.
Operative April 1, 1996, although a seller may meet both
criteria of the 80-80 rule, he or she may elect to separately account for the
sale of "take-out" or "to go" orders of cold food products which are in a form
suitable for consumption on the seller's premises. The gross receipts from the
sale of those food products shall be exempt from the tax provided the seller
keeps a separate accounting of these transactions in his or her records. Tax
will remain applicable to the sale of food products as provided in subdivisions
(a), (b), (e), or (f) of this regulation. Failure to maintain the required
separate accounting and documentation claimed as exempt under this subdivision
will revoke the seller's election under this subdivision.
(B) Seller Not Meeting Criteria of 80-80
Rule. When a seller does not meet both criteria of the 80-80 rule as explained
in subdivision (c)(3) below, tax does not apply to sales of cold food products
(including sales for a separate price of hot bakery goods and hot beverages
such as coffee) when sold on a "take-out" or "to go" order.
(2) Definitions.
(A) For purposes of this subdivision (c), the
term "suitable for consumption on the seller's premises" means food products
furnished:
1. In a form which requires no
further processing by the purchaser, including but not limited to cooking,
heating, thawing, or slicing, and
2. In a size which ordinarily may be
immediately consumed by one person such as a large milk shake, a pint of ice
cream, a pint of milk, or a slice of pie. Cold food products (excluding milk
shakes and similar milk products) furnished in containers larger in size than a
pint are considered to be in a form not suitable for immediate consumption.
Pieces of candy sold in bulk quantities of one pound or
greater are deemed to be sold in a form not suitable for consumption on the
seller's premises.
The term does not include cold food products which
obviously would not be consumed on the premises of the seller, e.g., a cold
party tray or a whole cold chicken.
(B) For purposes of this subdivision (c), the
term "seller's premises" means the individual location at which a sale takes
place rather than the aggregate of all locations of the seller. For example, if
a seller operates several drive-in and fast food restaurants, the operations of
each location stand alone and are considered separately in determining if the
sales of food products at each location meet the criteria of the 80-80 rule.
When two or more food-selling activities are conducted by
the same person at the same location, the operations of all food related
activities will be considered in determining if the sales of food products meet
the criteria of the 80-80 rule. For example, if a seller operates a grocery
store and a restaurant with no physical separation other than separate cash
registers, the grocery store operations will be included in determining if the
sales of food products meet the criteria of the 80-80 rule. When there is a
physical separation where customers of one operation may not pass freely into
the other operation, e.g., separate rooms with separate entrances but a common
kitchen, each operation will be considered separately for purposes of this
subdivision (c).
(3) 80-80 Rule. Tax applies under this
subdivision (c) only if the seller meets
both of the following
criteria:
(A) More than 80 percent of the
seller's gross receipts are from the sale of food products, and
(B) More than 80 percent of the seller's
retail sales of food products are taxable as provided in subdivisions (a), (b),
(e), and (f) of this regulation.
Sales of alcoholic beverages, carbonated beverages, or cold
food to go not suitable for immediate consumption should not be included in
this computation. Any seller meeting both of these criteria and claiming a
deduction for the sale of cold food products in a form not suitable for
consumption on the seller's premises must support the deduction by complete and
detailed records of such sales made.
(d) Places Where Admission Is Charged.
(1) General. Tax applies to sales of food
products when sold within, and for consumption within, a place the entrance to
which is subject to an admission charge, during the period when the sales are
made, except for national and state parks and monuments, and marinas,
campgrounds, and recreational vehicle parks.
(2) Definitions.
(A) "Place" means an area the exterior
boundaries of which are defined by walls, fences or otherwise in such a manner
that the area readily can be recognized and distinguished from adjoining or
surrounding property. Examples include buildings, fenced enclosures and areas
delimited by posted signs.
(B)
"Within a place" means inside the door, gate, turnstile, or other point at
which the customer must pay an admission charge or present evidence, such as a
ticket, that an admission charge has been paid. Adjacent to, or in close
proximity to, a place is not within a place.
(C) "Admission charge" means any
consideration required to be paid in money or otherwise, for admittance to a
place.
"Admission charge" does not include:
1. Membership dues in a club or other
organization entitling the member to, among other things, entrance to a place
maintained by the club or organization, such as a fenced area containing a club
house, tennis courts, and a swimming pool. Where a guest is admitted to such a
place only when accompanied by or vouched for by a member of the club or
organization, any charge made to the guest for use of facilities in the place
is not an admission charge.
2. A
charge for a student body card entitling the student to, among other things,
entrance to a place, such as entrance to a school auditorium at which a dance
is held.
3. A charge for the use of
facilities within a place to which no entrance charge is made to spectators.
For example, green fees paid for the privilege of playing a golf course, a
charge made to swimmers for the use of a pool within a place, or a charge made
for the use of lanes in a public bowling place.
(D) "National and state parks and monuments"
means those which are part of the National Park System or the State Park
System. The phrase does not include parks and monuments not within either of
those systems, such as city, county, regional, district or private
parks.
(3) Presumption
That Food Is Sold for Consumption Within a Place.
When food products are sold within a place the entrance to
which is subject to an admission charge, it will be presumed, in the absence of
evidence to the contrary, that the food products are sold for consumption
within the place. Obtaining and retaining evidence in support of the claimed
tax exemption is the responsibility of the retailer. Such evidence may consist,
for example, of proof that the sales were of canned jams, cake mixes, spices,
cooking chocolate, or other items in a form in which it is unlikely that such
items would be consumed within the place where sold.
(4) Food Sold to Students. The exemption
otherwise granted by Section 6363 does not apply to sales of food products to
students when sold within, and for consumption within, a place the entrance to
which is subject to an admission charge, and such sales are subject to tax
except as provided in (q) of this regulation. For example, when food products
are sold by a student organization to students or to both students and
nonstudents within a place the entrance to which is subject to an admission
charge, such as a place where school athletic events are held, the sales to
both students and nonstudents are taxable.
(e) Hot Prepared Food Products.
(1) General. Tax applies to all sales of hot
prepared food products unless otherwise exempt. "Hot prepared food products"
means those products, items, or components which have been prepared for sale in
a heated condition and which are sold at any temperature which is higher than
the air temperature of the room or place where they are sold. The mere heating
of a food product constitutes preparation of a hot prepared food product, e.g.,
grilling a sandwich, dipping a sandwich bun in hot gravy, using infra-red
lights, steam tables, etc. If the sale is intended to be of a hot food product,
such sale is of a hot food product regardless of cooling which incidentally
occurs. For example, the sale of a toasted sandwich intended to be in a heated
condition when sold, such as a fried ham sandwich on toast, is a sale of a hot
prepared food product even though it may have cooled due to delay. On the other
hand, the sale of a toasted sandwich which is not intended to be in a heated
condition when sold, such as a cold tuna sandwich on toast, is not a sale of a
hot prepared food product.
When a single price has been established for a combination
of hot and cold food items, such as a meal or dinner which includes cold
components or side items, tax applies to the entire established price
regardless of itemization on the sales check. The inclusion of any hot food
product in an otherwise cold combination of food products sold for a single
established price, results in the tax applying to the entire established price,
e.g., hot coffee served with a meal consisting of cold food products, when the
coffee is included in the established price of the meal. If a single price for
the combination of hot and cold food items is listed on a menu, wall sign or is
otherwise advertised, a single price has been established. Except as otherwise
provided in (b), (c), (d) or (f) of this regulation, or in Regulation 1574, tax
does not apply to the sale for a separate price of bakery goods, beverages
classed as food products, or cold or frozen food products. Hot bakery goods and
hot beverages such as coffee are hot prepared food products but their sale for
a separate price is exempt unless taxable as provided in (b), (c), (d) or (f)
of this regulation, or in Regulation 1574. Tax does apply if a hot beverage and
a bakery product or cold food product are sold as a combination for a single
price. Hot soup, bouillon, or consommé is a hot prepared food
product, which is not a beverage.
(2) Air Carriers Engaged in Interstate or
Foreign Commerce. Tax does not apply to the sale, storage, use, or other
consumption of hot prepared food products sold by caterers or other vendors to
air carriers engaged in interstate or foreign commerce for consumption by
passengers on such air carriers, nor to the sale, storage, use, or other
consumption of hot prepared food products sold or served to passengers by air
carriers engaged in interstate or foreign commerce for consumption by
passengers on such air carriers. "Air carriers" are persons or firms in the
business of transporting persons or property for hire or compensation, and
include both common and contract carriers. "Passengers" do not include crew
members. Any caterer or other vendor claiming the exemption must support it
with an exemption certificate from the air carrier substantially in the form
prescribed in Appendix A of this regulation.
(f) Food for Consumption at Facilities
Provided by the Retailer. Tax applies to sales of sandwiches, ice cream, and
other foods sold in a form for consumption at tables, chairs, or counters or
from trays, glasses, dishes, or other tableware provided by the retailer or by
a person with whom the retailer contracts to furnish, prepare, or serve food
products to others.
A passenger's seat aboard a train, or a spectator's seat at
a game, show, or similar event is not a "chair" within the meaning of this
regulation. Accordingly, except as otherwise provided in (c), (d), and (e)
above, tax does not apply to the sale of cold sandwiches, ice cream, or other
food products sold by vendors passing among the passengers or spectators where
the food products are not "for consumption at tables, chairs, or counters or
from trays, glasses, dishes, or other tableware provided by the
retailer."
(g) Tips,
Gratuities, and Service Charges. (Prior to January 1, 2015)
The provisions of subdivision (g) apply to transactions
occurring prior to January 1, 2015. This subdivision applies to restaurants,
hotels, caterers, boarding houses, soda fountains, drive-ins and similar
establishments. This subdivision applies to restaurants, hotels, caterers,
boarding houses, soda fountains, drive-ins and similar establishments.
An optional payment designated as a tip, gratuity, or
service charge is not subject to tax. A mandatory payment designated as a tip,
gratuity, or service charge is included in taxable gross receipts, even if the
amount is subsequently paid by the retailer to employees.
(1) Optional Payment.
(A) A payment of a tip, gratuity, or service
charge is optional if the customer adds the amount to the bill presented by the
retailer, or otherwise leaves a separate amount in payment over and above the
actual amount due the retailer for the sale of meals, food, and drinks that
include services. The following examples illustrate transactions where a
payment of a tip, gratuity or service charge is optional and not included in
taxable gross receipts. This is true regardless of printed statements on menus,
brochures, advertisements or other materials notifying customers that tips,
gratuities, or service charges will or may be added by the retailer to the
prices of meals, food, or drinks:
Example 1. The restaurant check is presented to the
customer with the "tip" area blank so the customer may voluntarily write in an
amount, or
Example 2. The restaurant check is presented to the
customer with options computed by the retailer and presented to the customer as
tip suggestions. The "tip" area is blank so the customer may voluntarily write
in an amount:
|
Guest
Check |
|
|
|
|
Food Item A |
$ 9.95 |
|
|
|
Beverage Item B |
3.75 |
|
|
|
Subtotal |
$13.70 |
|
|
|
8% sales tax |
1.10 |
|
|
|
Subtotal |
$14.80 |
|
|
|
Tip* |
|
|
|
|
Total |
|
|
* Suggested tips: 15%=$2.06;
18%=$2.47; 20%=$2.74; other.
If an employer misappropriates these payments for these
charges, as discussed in subdivision (g)(1)(B) below, such payments are
included in the retailer's taxable gross receipts.
(B) No employer shall collect, take, or
receive any gratuity or a part thereof, paid, given to, or left for an employee
by a patron, or deduct any amount from wages due an employee on account of such
gratuity, or require an employee to credit the amount, or any part thereof, of
such gratuity against and as a part of the wages due the employee from the
employer. (Labor Code section
351.) If this
prohibition is violated, any amount of such gratuities received by the employer
will be considered a part of the gross receipts of the employer and subject to
the tax.
(2) Mandatory
Payment.
(A) An amount negotiated between the
retailer and the customer in advance of a meal, food, or drinks, or an event
that includes a meal, food, or drinks is mandatory.
(B) When the menu, brochures, advertisements
or other printed materials contain statements that notify customers that tips,
gratuities, or service charges will or may be added, an amount automatically
added by the retailer to the bill or invoice presented to and paid by the
customer is a mandatory charge and subject to tax. These amounts are considered
negotiated in advance as specified in subdivision (g)(2)(A). Examples of
printed statements include:
"An 18% gratuity [or service charge] will be added to
parties of 8 or more."
"Suggested gratuity 15%," itemized on the invoice or bill
by the restaurant, hotel, caterer, boarding house, soda fountain, drive-in or
similar establishment.
"A 15% voluntary gratuity will be added for parties of 8 or
more." An amount will be considered "automatically added" when the retailer
adds the tip to the bill without first conferring with the customer after
service of the meal and receiving approval to add the tip or without providing
the customer with the option to write in the tip. Nonetheless, any amount added
by the retailer is presumed to be mandatory. This presumption may be overcome
as discussed in subdivision (g)(2)(C) below.
(C) It is presumed that an amount added as a
tip by the retailer to the bill or invoice presented to the customer is
mandatory. A statement on the bill or invoice that the amount added by the
retailer is a "suggested tip," "optional gratuity," or that "the amount may be
increased, decreased, or removed" by the customer does not change the mandatory
nature of the charge.
This presumption may be controverted by documentary
evidence showing that the customer specifically requested and authorized the
gratuity be added to the amount billed.
Examples of documentary evidence that may be used to
overcome the presumption include:
1. A
guest check that is presented to the customer showing sales tax reimbursement
and the amount upon which it was computed, without tip or with the "tip" area
blank and a separate document, such as a credit card receipt, to which the
retailer adds or prints the requested tip.
2. Guests receipts and payments showing that
the percentage of tips paid by large groups varies from the percentage stated
on the menu, brochure, advertisement or other printed materials.
3. A retailer's written policy stating that
its employees shall receive confirmation from a customer before adding a tip
together with additional verifiable evidence that the policy has been enforced.
The policy is not in itself sufficient documentation to establish that the
customer requested and authorized that a gratuity be added to the amount billed
without such additional verifiable evidence.
The retailer must retain the guest checks and any
additional separate documents to show that the payment is optional. The
retailer is also required to maintain other records in accordance with the
requirements of Regulation 1698,
Records.
(h) Tips, Gratuities, and Service Charges.
(On and after January 1, 2015)
The provisions of subdivision (h) apply to transactions
occurring on and after January 1, 2015. This subdivision applies to
restaurants, hotels, caterers, boarding houses, soda fountains, drive-ins and
similar establishments.
An optional payment designated as a tip, gratuity, or
service charge is not subject to tax. A mandatory payment designated as a tip,
gratuity, or service charge is included in taxable gross receipts, even if it
is subsequently paid by the retailer to employees. For purposes of this
subdivision, "amount" means a payment designated as a tip, gratuity, service
charge, or any other separately stated payment for services associated with the
purchase of meals, food, or drinks.
(1) Optional Payment.
When a retailer keeps records consistent with reporting
amounts as tip wages for Internal Revenue Service (IRS) purposes, such amounts
are presumed to be optional and not subject to tax. When a retailer does not
maintain such records, this presumption does not apply and the amounts may be
mandatory and included in taxable gross receipts as discussed in subdivisions
(h)(2) and (h)(3).
The following examples illustrate transactions where an
amount is optional and not included in taxable gross receipts:
Example 1. The restaurant check is presented to the
customer with the "tip" area blank so the customer may voluntarily write in the
amount, or
Example 2. The restaurant check is presented to the
customer with options computed by the retailer and presented to the customer as
tip suggestions. The "tip" area is blank so the customer may voluntarily write
in the amount:
|
Guest
Check |
|
|
|
|
Food Item A |
$ 9.95 |
|
|
|
Beverage Item B |
3.75 |
|
|
|
Subtotal |
$13.70 |
|
|
|
8% sales tax |
1.10 |
|
|
|
Subtotal |
$14.80 |
|
|
|
Tip* |
|
|
|
|
Total |
|
|
* Suggested tips: 15%=$2.06;
18%=$2.47; 20%=$2.74; other.
Under these circumstances, the customer is free to enter
the amount on the tip line or leave it blank; thus, the customer may enter an
amount free from compulsion. The customer and restaurant did not negotiate the
amount nor did the restaurant dictate the amount.
If an employer misappropriates these amounts, as discussed
in subdivision (h)(4) below, such payments are included in the retailer's
taxable gross receipts.
(2)
Mandatory Payment.
When a retailer's records reflect that amounts are required
to be reported to the IRS as non-tip wages, the amount is deemed to be
mandatory.
(3) When a
retailer does not maintain records for purposes of reporting the amounts to the
IRS:
(A) An amount negotiated between the
retailer and the customer in advance of a meal, food, or drinks, or an event
that includes a meal, food, or drinks is mandatory.
(B) When the menu, brochures, advertisements
or other printed materials contain statements that notify customers that tips,
gratuities, or service charges will or may be added, an amount automatically
added by the retailer to the bill or invoice presented to and paid by the
customer is a mandatory charge and subject to tax. These amounts are considered
negotiated in advance as specified in subdivision (h)(3)(A). Examples of
printed statements include:
"An 18% gratuity [or service charge] will be added to
parties of 8 or more."
"Suggested gratuity 15%," itemized on the invoice or bill
by the restaurant, hotel, caterer, boarding house, soda fountain, drive-in or
similar establishment.
"A 15% voluntary gratuity will be added for parties of 8 or
more."
An amount will be considered "automatically added" when the
retailer adds the amount to the bill without first conferring with the customer
after service of the meal. Nonetheless, any amount added by the retailer is
presumed to be automatically added and mandatory. This presumption may be
overcome as discussed in subdivision (h)(3)(C) below.
(C) It is presumed that an amount added as a
tip by the retailer to the bill or invoice presented to the customer is
automatically added and mandatory. A statement on the bill or invoice that the
amount added by the retailer is a "suggested tip," "optional gratuity," or that
the amount "may be increased, decreased, or removed" by the customer does not
change the mandatory nature of the charge.
This presumption may be controverted by documentary
evidence showing that the customer specifically requested and authorized the
amount be added to the bill.
Examples of documentary evidence that may be used to
overcome the presumption include:
1. A
guest check that is presented to the customer showing sales tax reimbursement
and the figure upon which it was computed, without "tip" or with the "tip" area
blank and a separate document, such as a credit card receipt, to which the
retailer adds or prints the requested amount.
2. Guest receipts and payments showing that
the percentage of amounts paid by large parties varies from the percentage
stated on the menu, brochure, advertisement or other printed
materials.
3. A retailer's written
policy stating that its employees shall receive confirmation from a customer
before adding an amount together with additional verifiable evidence that the
policy has been enforced. The policy is not in itself sufficient documentation
to establish that the customer requested and authorized that the amount be
added to the bill without such additional verifiable evidence.
The retailer must retain the guest checks and any
additional separate documents to show that the payment is optional. The
retailer is also required to maintain other records in accordance with the
requirements of Regulation 1698,
Records.
(4) No employer shall collect, take, or
receive any gratuity or a part thereof, paid, given to, or left for an employee
by a patron, or deduct any amount from wages due an employee on account of such
gratuity, or require an employee to credit the amount, or any part thereof, of
such gratuity against and as a part of the wages due the employee from the
employer. (Labor Code section
351.) If this
prohibition is violated, any amount received by the employer will be considered
a part of the gross receipts of the employer and subject to the
tax.
(i) Caterers.
(1) Definition. The term "caterer" as used in
this regulation means a person engaged in the business of serving meals, food,
or drinks on the premises of the customer, or on premises supplied by the
customer, including premises leased by the customer from a person other than
the caterer, but does not include employees hired by the customer by the hour
or day.
(2) Sales to Caterers. A
caterer generally is considered to be the consumer of tangible personal
property normally used in the furnishing and serving of meals, food or drinks,
except for separately stated charges by the caterer for the lease of tangible
personal property or tangible personal property regarded as being sold with
meals, food or drinks such as disposable plates, napkins, utensils, glasses,
cups, stemware, place mats, trays, covers and toothpicks.
(3) Sales by Caterers.
(A) Caterer as Retailer. Tax applies to the
entire charge made by caterers for serving meals, food, and drinks, inclusive
of charges for food, the use of dishes, silverware, glasses, chairs, tables,
etc., used in connection with serving meals, and for the labor of serving the
meals, whether performed by the caterer, the caterer's employees or
subcontractors. Tax applies to charges made by caterers for preparing and
serving meals and drinks even though the food is not provided by the caterers.
Tax applies to charges made by caterers for hot prepared food products as in
(e) above whether or not served by the caterers. A caterer who separately
states or itemizes charges for the lease of tangible personal property
regardless of the use of the property will be deemed to be the lessor of such
property. Tax applies in accordance with Regulation 1660, Leases of Tangible
Personal Property -- In General. Tax does not apply to charges made by caterers
for the rental of dishes, silverware, glasses, etc., purchased by the caterer
with tax paid on the purchase price if no food is provided or served by the
caterers in connection with such rental.
(B) Caterers as Lessors of Property Unrelated
to the Serving or Furnishing of Meals, Food, or Drinks by a Caterer.
1. When a caterer who is furnishing or
serving meals, food, or drinks also rents or leases from a third party tangible
personal property which the caterer does not use himself or herself and the
property is not customarily provided or used within the catering industry in
connection with the furnishing and serving of food or drinks, such as
decorative props related solely to optional entertainment, special lighting for
guest speakers, sound or video systems, dance floors, stages, etc., he or she
is a lessor of such property. In such instances, tax applies to the lease in
accordance with Regulation 1660.
2.
When a person who in other instances is a caterer does not furnish or serve any
meals, food, or drinks to a customer, but rents or leases from a third party
tangible personal property such as dishes, linen, silverware and glasses, etc.,
for purposes of providing it to his or her customer, he or she is not acting as
a caterer within the meaning of this regulation, but solely as a lessor of
tangible personal property. In such instances, tax applies to the lease in
accordance with Regulation 1660.
(C) Caterers Planning, Designing and
Coordinating Events.
1. Tax applies to charges
by a caterer for event planning, design, coordination, and/or supervision if
they are made in connection with the furnishing of meals, food, or drinks for
the event. Tax does not apply to separately stated charges for services
unrelated to the furnishing and serving of meals, food, or drinks, such as
optional entertainment or any staff who do not directly participate in the
preparation, furnishing, or serving of meals, food, or drinks, e.g., coat-check
clerks, parking attendants, security guards, etc.
2. When a caterer sells meals, food, or
drinks, and the serving of them, to other persons such as event planners, party
coordinators, or fundraisers, who buy and sell the same on their own account or
for their own sake, it is a sale for resale for which the caterer may accept a
resale certificate. However, a caterer may only claim the sale as a resale if
the caterer obtains a resale certificate in compliance with Regulation 1668. A
person is buying or selling for his or her own account, or own sake, when such
person has his or her own contract with a customer to sell the meals, food, or
drinks to the customer, and is not merely acting on behalf of the
caterer.
3. When a caterer sells
meals, food or drinks and the serving of them to other persons who charge a fee
for their service unrelated to the taxable sale, the separately stated fee is
not subject to tax.
(D)
Sales of Meals by Caterers to Social Clubs, Fraternal Organizations. Sales of
meals to social clubs and fraternal organizations, as those terms are defined
in subdivision (j) below, by caterers are sales for resale if such social clubs
and fraternal organizations are the retailers of the meals subject to tax under
subdivision (j) and give valid resale certificates therefor.
(E) Tips, Gratuities, or Service Charges.
Tips, gratuities, and service charges are discussed in subdivisions (g) and
(h).
(4) Premises.
General. Separately stated charges for the lease of premises on which meals,
food, or drinks are served, are nontaxable leases of real property. Where a
charge for leased premises is a guarantee against a minimum purchase of meals,
food or drinks, the charge for the guarantee is gross receipts subject to tax.
Where a person contracts to provide both premises and meals, food or drinks,
the charge for the meals, food or drinks must be reasonable in order for the
charge for the premises to be nontaxable.
(5) Private Chefs. A private chef is
generally not an employee of the customer, but an independent contractor who
pays his or her own social security, and federal and state income taxes. Such a
private chef, who prepares and serves meals, food and drinks in the home of his
or her customer is a caterer under this regulation.
(j) Social Clubs and Fraternal Organizations.
"Social Clubs and Fraternal Organizations" as used herein include any
corporation, partnership, association or group or combination acting as a unit,
such as service clubs, lodges, and community, country, and athletic clubs.
The tax applies to receipts from the furnishing of meals,
food, and drink by social clubs and fraternal organizations unless
furnished:
(1) exclusively to members;
and also,
(2) less frequently than
once a week. Both of these requirements must be met. If the club or
organization furnishes meals, food or drink to nonmembers, all receipts from
the furnishing of meals, food or drink are subject to tax whether furnished to
members or nonmembers, including receipts on occasions when furnished
exclusively to members. Meals, food or drink paid for by members are considered
furnished to them even though consumed by guests who are not
members.
(k) Student
Meals.
(1) Definitions.
(A) "Food Products." As used herein, the term
"food products" as defined in Regulation 1602 (
18 CCR
1602) includes food furnished, prepared, or
served for consumption at tables, chairs, or counters, or from trays, glasses,
dishes, or other tableware provided by the retailer or by a person with whom
the retailer contracts to furnish, prepare or serve food to others.
(B) "Meals." As used herein, the term "meals"
includes both food and nonfood products which are sold to students for an
established single price at a time set aside for meals. If a single price for
the combination of a nonfood product and a food product is listed on a menu or
on a sign, a single price has been established. The term "meals" does not
include nonfood products which are sold to students for a separate price and
tax applies to the sales of such products. Examples of nonfood products are:
carbonated beverages and beer. For the purpose of this regulation, products
sold at a time designated as a "nutrition break", "recess", or similar break,
will not be considered "meals."
(2) Application of Tax.
(A) Sales by Schools, School Districts and
Student Organizations. Sales of meals or food products for human consumption to
students of a school by public or private schools, school districts, and
student organizations are exempt from tax, except as otherwise provided in
(d)(4) above.
(B) Sales by
Parent-Teacher Associations. Tax does not apply to the sale of, nor the
storage, use or other consumption in this state of, meals and food products for
human consumption furnished or served to the students of a school by
parent-teacher associations. Parent-teacher associations qualifying under
Regulation 1597 as consumers are not retailers of tangible personal property,
which they sell. Accordingly, tax does apply to the sale to such associations
of nonfood items such as carbonated beverages, containers, straws and
napkins.
(C) Sales by Blind
Vendors. Tax does not apply to the sale of meals or food products for human
consumption to students of a school by any blind person (as defined in section
19153
of the Welfare and Institutions Code) operating a restaurant or vending stand
in an educational institution under article 5 of chapter 6 of part 2 of
division 10 of the Welfare and Institutions Code, except as otherwise provided
in (d)(4) above.
(D) Sales by
Caterers. The application of tax to sales by caterers in general is explained
in subdivision (i) above. However, tax does not apply to the sale by caterers
of meals or food products for human consumption to students of a school, if all
the following criteria are met:
1. The
premises used by the caterer to serve the lunches to the students are used by
the school for other purposes, such as sporting events and other school
activities, during the remainder of the day;
2. The fixtures and equipment used by the
caterer are owned and maintained by the school; and
3. The students purchasing the meals cannot
distinguish the caterer from the employees of the
school.
(l) Employees' Meals.
(1) In General. Any employer or employee
organization that is in the business of selling meals, e.g., a restaurant,
hotel, club, or association, must include its receipts from the sales of meals
to employees, along with its receipts from sales to other purchasers of meals,
in the amount upon which it computes its sales tax liability. An employer or an
employee organization selling meals only to employees becomes a retailer of
meals and liable for sales tax upon its receipts from sales of meals if it
sells meals to an average number of five or more employees during the calendar
quarter.
(2) Specific Charge. The
tax applies only if a specific charge is made to employees for the meals. Tax
does not apply to cash paid an employee in lieu of meals. A specific charge is
made for meals if:
(A) Employee pays cash for
meals consumed.
(B) Value of meals
is deducted from employee's wages.
(C) Employee receives meals in lieu of cash
to bring compensation up to legal minimum wage.
(D) Employee has the option to receive cash
for meals not consumed.
(3) No Specific Charge. If an employer makes
no specific charge for meals consumed by employees, the employer is the
consumer of the food products and the nonfood products, which are furnished to
the employees as a part of the meals.
In the absence of any of the conditions under
(l)(2) a specific charge is not made if:
(A) A value is assigned to meals as a means
of reporting the fair market value of employees' meals pursuant to state and
federal laws or regulations or union contracts.
(B) Employees who do not consume available
meals have no recourse on their employer for additional cash wages.
(C) Meals are generally available to
employees, but the duties of certain employees exclude them from receiving the
meals and are paid cash in lieu thereof.
(4) Meals Credited Toward Minimum Wage. If an
employee receives meals in lieu of cash to bring his or her compensation up to
the legal minimum wage, the amount by which the minimum wage exceeds the amount
otherwise paid to the employee is includable in the employer's taxable gross
receipts up to the value of the meals credited toward the minimum wage.
For example, if the minimum rate for an eight-hour day is
$46.00, and the employee received $43.90 in cash, and a lunch is received which
is credited toward the minimum wage in the maximum allowable amount of $2.10,
the employer has received gross receipts in the amount of $2.10 for the
lunch.
(5) Tax
Reimbursement. If a separately stated amount for tax reimbursement is not added
to the price of meals sold to employees for which a specific charge is made,
the specific charge will be regarded as being a tax-included charge for the
meals.
(m) Religious
Organizations. Tax does not apply to the sale of, and the storage, use or other
consumption in this state of, meals and food products for human consumption
furnished or served by any religious organization at a social or other
gathering conducted by it or under its auspices, if the purpose in furnishing
or serving the meals and food products is to obtain revenue for the functions
and activities of the organization and the revenue obtained from furnishing or
serving the meals and food products is actually used in carrying on such
functions and activities. For the purposes of this regulation, "religious
organization" means any organization the property of which is exempt from
taxation pursuant to subdivision (f) of section
3 of article XIII of the State
Constitution.
(n) Institutions. Tax
does not apply to the sale of, nor the storage, use, or other consumption in
this state of, meals and food products for human consumption furnished or
served to and consumed by patients or residents of an "institution" as defined
in Regulation 1503. Tax, however, does apply to the sale of meals and food
products by an institution to persons other than patients or residents of the
institution.
(o) Meal Programs for
Low-Income Elderly Persons. Tax does not apply to the sale of, and the storage,
use or other consumption in this state of, meals and food products for human
consumption furnished or served to low-income elderly persons at or below cost
by a nonprofit organization or governmental agency under a program funded by
this state or the United States for such purposes.
(p) Food Products, Nonalcoholic Beverages and
Other Tangible Personal Property Transferred by Nonprofit Youth Organizations.
See Regulation 1597 for the application of tax on food products, nonalcoholic
beverages and other tangible personal property transferred by nonprofit youth
organizations.
(q) Nonprofit
Parent-Teacher Associations. Nonprofit parent-teacher associations and
equivalent organizations qualifying under Regulation 1597 are consumers and not
retailers of tangible personal property, which they sell.
(r) Meals and Food Products Served to
Condominium Residents. Tax does not apply to the sale of, and the storage, use,
or other consumption in this state of meals and food products for human
consumption furnished to and consumed by persons 62 years of age or older
residing in a condominium and who own equal shares in a common kitchen
facility; provided, that the meals and food products are served to such persons
on a regular basis.
This exemption is applicable only to sales of meals and
food products for human consumption prepared and served at the common kitchen
facility of the condominium. Tax applies to sales to persons less than 62 years
of age.
(s) Veteran's
Organization. Beginning April 1, 2004, tax does not apply to the sale of, and
the storage, use or other consumption in this state of, meals and food products
for human consumption furnished or served by any nonprofit veteran's
organization at a social or other gathering conducted by it or under its
auspices, if the purpose in furnishing or serving the meals and food products
is to obtain revenue for the functions and activities of the organization and
the revenue obtained from furnishing or serving the meals and food products is
actually used in carrying on those functions and activities.
(t) CalFresh Benefits (Formerly Food Stamp
Coupons). Tax does not apply to tangible personal property which is eligible to
be purchased with CalFresh benefits acquired pursuant to the Food and Nutrition
Act of 2008 and so purchased. When payment is made in the form of both CalFresh
benefits and cash, the amount of the CalFresh benefits must be applied first to
tangible personal property normally subject to the tax, e.g., nonalcoholic
carbonated beverages. Retailers are prohibited from adding any amount
designated as sales tax, use tax, or sales tax reimbursement to sales of
tangible personal property purchased with CalFresh benefits. (See paragraph (c)
of Regulation 1602.5 for special reporting provisions by grocers.)
(u) Honor System Snack Sales. An "honor
system snack sale" means a system where customers take snacks from a box or
tray and pay by depositing money in a container provided by the seller. Snacks
sold through such a system may be subject to tax depending upon where the sale
takes place. Sales of such snacks are taxable when sold at or near a lunchroom,
break room, or other facility that provides tables and chairs, and it is
contemplated that the food sold will normally be consumed at such facilities.
Honor system snack sales do not include hotel room mini-bars or snack
baskets.
(v) Mobile Food Vendors.
Mobile food vendors include retailers who sell food and beverages for immediate
consumption from motorized vehicles or un-motorized carts. Examples of mobile
food vendors include food trucks, coffee carts, and hot dog carts. For sales
made on or after July 1, 2014, unless a separate amount for tax reimbursement
is added to the price, mobile food vendors' sales of taxable items are presumed
to be made on a tax-included basis.
This presumption does not apply when a mobile food vendor
is making sales as a "caterer" as defined in (i)(1).
__________
1 The records acceptable in
support of such a deduction are:
(a) A
sales ticket prepared for each transaction claimed as being tax exempt showing:
(1) Date of the sale,
(2) The kind of merchandise sold,
(3) The quantity of each kind of merchandise
sold,
(4) The price of each kind of
merchandise sold,
(5) The total
price of merchandise sold,
(6) A
statement to the effect that the merchandise purchased is not to be consumed on
or near the location at which parking facilities are provided by the retailer,
and
(b) A daily sales
record kept in sufficient detail to permit verification by audit that all gross
receipts from sales have been accounted for and that all sales claimed as being
tax exempt are included therein.
