During a sales tax appeals hearing at the Board of Equalization's three-day meeting in Culver City (May 13 through May 15), the board heard a staff explanation on how the sales tax exemption for "take-out food" is administered.
Three Los Angeles-area bakeries disputed a sales tax assessment on take-out food on a variety of grounds (Appeals of Tullio Mamolo and Viktor Benes Continental Pastries, Inc.).
Board staff outlined the process for determining the tax owed for food served on the premises. First, the staff determines if there are tables and chairs in the vicinity. The business selling the food need not own the tables and chairs. Since the observation will be months or years after the audit period, a determination must be made if the tables and chairs were present every day during the audit period. This could involve some assumptions.
Then, board staff will determine what percentage of the food was consumed on the premises. They do this not by checking if a customer used the tables and chairs. Instead, the percentage is based on whether the customer, when ordering the food, stated that the order was "to go," or if it would be eaten there.
In determining this percentage, board staff will make an observation that could be limited to as little as a single day, significantly later than the audit period in question. The ratio developed from the observation then is applied to each day of the year or years in the audit period.
For the appeals at issue, the board postponed action on a bakery in a Century City shopping center to allow staff time to check out the taxpayer's statement that there were no tables or chairs nearby during the audit period, and that the seating area was created when a nearby retailer completed remodeling. Based on the staff audit, the board voted 3-2 to turn down the appeal filed by the other two bakeries.
Cal-Taxletter May 16, 2008
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