Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Szabo Food Service, Inc. of California v. State Board of Equalization . . . (1975)

Employers' Subsidies to Cafeteria Operators Not Subject to Tax

Plaintiff operated cafeterias on the premises of public and private employers. Plaintiff entered into management operating agreements with the employers whereby each employer guaranteed expenses plus a fixed or a percentage fee to plaintiff for operating the cafeteria. If sales exceeded the cost plus fee, plaintiff paid the excess to the employer.

The Board assessed and collected taxes on the additional amounts paid by employers to plaintiff on the basis that these constituted gross receipts from the cafeteria sales. Plaintiff's claim for refund of taxes paid on the subsidies was granted in the trial court and upheld in the court of appeal.

Since the Board's finding that the subsidies were a part of taxable gross receipts was not based on any formal regulation, the court held that the weight normally attached to Board findings did not apply and that this finding was subject to judicial review for errors in factual analysis and legal interpretation.

The court then found that the subsidies were not consideration for the food sold to employers nor a part of the gross receipts from the sale of meals. The subsidies were thus not subject to tax where they could not be traced to particular sales of particular meals. Rebates paid by plaintiff to the employers were, however, a part of plaintiffs taxable gross receipts. Szabo Food Service, Inc. of California v. State Board of Equalization (1975) 46 Cal.App.3d 268.