Automatic Canteen Co. of America v. State Bd. of Equalization

• Decision Date: 24 November 1965
• Citation: 47 Cal.Rptr. 848,238 Cal.App.2d 372
• Court: California Court of Appeals Court of Appeals
• Parties: AUTOMATIC CANTEEN COMPANY OF AMERICA, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant. Civ. 22446.

Page 848

47 Cal.Rptr. 848

238 Cal.App.2d 372

AUTOMATIC CANTEEN COMPANY OF AMERICA, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

Civ. 22446.

District Court of Appeal, First District, Division 1, California.

Nov. 24, 1965.

As Modified on Denial of Rehearing Dec. 21, 1965.

Hearing Denied Jan. 19, 1966.

Thomas C. Lynch, Atty. Gen., of State of California, Ernest P. Goodman and John J. Klee, Jr., Deputy Attys. Gen., San Francisco, for appellant.

J. Joseph Sullivan, San Francisco, for respondent.

MOLINARI, Justice.

Statement of the Case

This action was brought by Automatic Canteen Company of America, as successor to Nationwide Food Service, Inc. (hereinafter referred to as Nationwide), seeking the refund of $60,479.35 paid by Nationwide as sales taxes for the period of December 21, 1952 through March 14, 1959, these sales taxes having been paid on the gross receipts of Nationwide's in-plant feeding operations at Shell Chemical Corporation, Shell Oil Company, Carnation Company, Standard Oil Company of California, Norris-Thermador Corporation, and Dohrmann Hotel Supply Company. Judgment in the sum of $39,586.09 was awarded Nationwide and it is from this judgment that defendant State Board of Equalization appeals. ¹

The Issues

Section 6051 of the Revenue and Taxation Code ² imposes an excise tax upon retailers for the privilege of conducting a retail business, measured by gross receipts from retail sales. ³ Section 6006, subdivision (d), in defining the term "Sale," includes 'The furnishing, preparing, or serving for a consideration of food, meals, or drinks,' and section 6007 defines a "Retail sale" as 'a sale for any purpose other than resale in the regular course of business * * *.' The initial issue raised by this appeal is whether Nationwide's activities in the preparation and serving of food at the employee cafeterias of the four companies involved in this appeal are properly characterized as the making of retail sales. As a second issue, Nationwide contends that in the event that it was the retailer of the food prepared and sold at these four plants, its gross receipts from these operations were exempt from sales tax under section 6363, which, during the period here involved, provided for such an exemption as to food served by employers to their employees. ⁴

The Record

At the trial Nationwide introduced into evidence the contracts between it and the six companies at whose office buildings and plants it performed its operations. In addition, Nationwide produced four witnesses, each an employee of one of the following named companies at which Nationwide had contracted to perform its in-plant feeding services, to wit: Shell Chemical, Shell Oil, Carnation and Norris-Thermador. Each of these witnesses testified concerning Nationwide's operations at the particular location with which he was familiar. No witnesses were called to testify as to the Standard Oil and Dohrmann operations.

During that years here in question Nationwide was a Delaware corporation engaged in California and in other states in the business of industrial catering and inplant feeding. In its 'Application for Permit to Engage in Business as a Seller of Tangible Personal Property and Registration as a Retailer,' Nationwide listed its 'Kind of business' as 'Retail-Industrial Restaurants.' As part of its business activities, Nationwide was involved in the operation of cafeterias, executive dining rooms, ans canteens at the six locations around which the trial below evolved, namely, (1) Shell Chemical's plant in Torrance, (2) Shell Oil's office building on Sixth Street in Los Angeles, (3) Carnation's office building on Wilshire Boulevard in Los Angeles, (4) Standard Oil's office building on Olympic Boulevard in Los Angeles, (5) Norris-Thermador's plant in Los Angeles, and (6) Dohrmann's office building in Culver City. ⁵ As to several of these companies, it was established at the trial that they maintained eating facilities for their employees in their plants for the reason that there were either no restaurants in the vicinity or the existing restaurants were too expensive or could not promptly accommodate the employees.

Concerning the nature of Nationwide's operations at the six locations involved in the instant action, ⁶ the following evidence was adduced at the trial:

As to all six operations, Nationwide operated pursuant to a written contract with the particular employer. In the cases of Norris-Thermador and Dohrmann, the contract was prepared on Nationwide's standard form agreement and provided in part that 'The Owner hereby grants to Nationwide as an independent contractor the exclusive right and license to sell and dispense within such parts of the Plant as may be mutually agreed upon, food, ice cream, candy, gum, nuts, non-alcoholic beverages, tobacco products and such other products as may be permitted by the Owner to be sold within the Plant'; that 'Nationwide will at all times furnish proper hot and cold foods and food service to the employees of the Owner in the above-described cafeteria and other facilities, and shall serve food to the employees of the Owner during such feeding periods for each shift as may be designated by the Owner'; and that Nationwide would be reimbursed for its costs and should receive in addition 5 percent of its gross sales with a guaranteed minimum.

The remaining four contracts were not prepared on Nationwide's standard form contract. The contract with Standard Oil provided in part that 'Nationwide shall provide such supervisory assistance in the operation of * * * [Standard Oil's] Dining Room and Cafeteria as may be necessary, in Standard's opinion, for its efficient operation'; that 'Nationwide, on behalf of Standard, shall procure such matetrials and foodstuff, and shall provide such supervision of the preparation, service and sale thereof by Standard employees, as may be reasonably necessary in Standard's opinion for the proper and efficient operation of such Dining Room and Cafeteria in relation to the number and quantity of meals served therein'; that 'Standard shall collect all gross receipts from sales of food in such Dining Room and Cafeteria and shall turn over to Nationwide daily the gross receipts from such sales to defray Nationwide's costs hereunder'; that 'Any amount of such gross receipts in excess of the cost of business * * * shall be retained by Nationwide as compensation for services rendered hereunder, but Standard agrees to pay Nationwide the difference, computed during any four-week accounting period, between the amount of such compensation and $100'; that 'In no event shall Standard's liability hereunder for any such four-week period exceed $100'; and that 'Nationwide shall bear all costs of operations in excess thereof and shall hold Standard harmless from all claims therefor.' The term 'Cost of Business' in said contract was defined to include the actual cost of direct labor, including payroll taxes and benefits to Standard's employees working in the dining room and cafeteria; the actual cost of materials and supplies required in the operation of the dining room and cafeteria; and an overhead charge of 3 1/2 percent of the gross receipts, with a minimum of $150 per accounting period. The term 'Gross Receipts' was defined in the contract to mean 'total cash receipts from actual sales of food in such Dining Room and Cafeteria. * * *' The Standard contract provided, further, that 'Nationwide shall perform its obligations hereunder as an independent contractor'; in such Dining Room and Cafeteria, except and repair the dining room and cafeteria equipment and facilities; that Nationwide would supervise use of such equipment; that Nationwide would replace expendable equipment, such as china, crockery, glass tableware and kitchen utensils, the cost thereof to be charged as a 'cost of business'; that such replacements were to become the property of Standard; that Standard would furnish all utilities necessary for the operation of the dining room and cafeteria; that the operating hours, menus, prices and sizes of portions of food would be those in effect at the date of the contract and the same could not be changed without Standard's consent; that Nationwide would carry Workmen's Compensation insurance on its own employees and would carry product liability insurance insuring Standard and Nationwide with insurance companies and with limits satisfactory to Standard, the premiums on the latter policy to the charged as a 'cost of business'; that Standard had 'the sole right to employ, discharge or transfer all individuals assigned to work in such Dining Room and Cafeteria, Except supervisory staff employed and paid by Nationwide'; that the wages and benefits of Standard's employees were to be determined by Standard at its discretion and the salaries and wages of such employees, including taxes and benefits, were to be charged to 'cost of business'; that Standard employees were to be under the direct supervision of Nationwide's managerial staff as to the manner in which foods were to be prepared and served, and no employees of Nationwide were to prepare or sell meals; that Nationwide was to maintain 'accurate records of all inventories, receipts, costs and disbursements in connection with the supervision and operation of such Dining Room and Cafeteria' subject to inspection and audit by Standard; that Standard was to invoice Nationwide on a calendar month basis for salaries, wages, payroll taxes and employee' benefits applicable to Standard's employees; that at specified accounting periods Nationwide was to give Standard a statement showing gross receipts, cost of business and net profit or loss, resulting from operations of the dining room and cafeteria; and that Nationwide would procure all licenses and permits, on behalf of Standard, for the operation of the dining room and cafeteria, the cost thereof to be charged to 'cost of business. * *...