HAGAN, Bankruptcy Judge:
The State Board of Equalization of the State of California (the "Board") filed a proof of claim for sales and use taxes against Los Angeles International Airport Hotel Associates ("Debtor"), a chapter 11 debtor and debtor-in-possession. The Debtor objected to the proof of claim. The bankruptcy court held in favor of the Debtor, and disallowed the Board's proof of claim in its entirety. The Board appeals. We REVERSE and REMAND.
The Debtor owns a hotel located in El Segundo, California (the "hotel"). Located in the vicinity of the Los Angeles International Airport, the hotel competed for business by offering complimentary beverages and breakfasts to its patrons. No separate charge was
The Debtor filed its chapter 11 petition on July 29, 1992. On June 28, 1993, the Board submitted a proof of claim for sales and use taxes. The proof of claim sought $429,930.00 for taxes and interest owing from April 1, 1984 to July 29, 1992. This amount was alleged to be a priority claim under 11 U.S.C. § 507(a)(7). The Board additionally claimed penalties and interest of $69,468.65 as of June 30, 1993. No supporting documentation was attached to the proof of claim.
The Debtor objected to allowance of the proof of claim. The grounds for the Debtor's objection were as follows. (1) The Board incorrectly claimed as a priority taxes owing from 1984-1989, when those taxes lay outside the three-year limitation period of 11 U.S.C. § 507(a)(7)(A)(i).
The Board filed a response to the objection, together with a declaration by Stephen C. Young in support. The Debtor moved to strike the response and declaration as untimely. The Debtor also replied to the Board's response, arguing that the information provided was inadequate to support the proof of claim.
A hearing was held on June 21, 1995. During this hearing, the court may or may not have allowed the Board's response and declaration.
The Board presents the following issues on appeal:
(1) Whether the court incorrectly ruled that the complimentary beverages and breakfasts were provided without consideration; and
(2) Whether the court improperly disallowed the use tax portion of the Board's claim for failing to provide supporting documentation.
STANDARD OF REVIEW
The bankruptcy court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo. Wright v. Holm (In re Holm), 931 F.2d 620, 622 (9th Cir.1991).
1. The Complimentary Beverages and Breakfasts Were Subject to Sales Tax.
Section 6051 of the California Revenue and Taxation Code provides for a sales
The Debtor contends, and the bankruptcy court agreed, that the beverages and breakfasts were complimentary, and therefore were not provided to its guests for consideration. This argument must be rejected. Whether a transfer is made for consideration for the purpose of sales tax is as much a question of contract law as it is of tax law. Beatrice Co. v. State Board of Equalization, 6 Cal.4th 767, 774, 25 Cal.Rptr.2d 438, 443, 863 P.2d 683, 688 (1993). "Any benefit conferred . . . upon the promisor, by any other person, to which the promisor is not lawfully entitled, . . . as an inducement to the promisor, is a good consideration for a promise." Cal.Civ.Code § 1605; see Beatrice, 6 Cal.4th at 776, 25 Cal.Rptr.2d at 444, 863 P.2d at 689 ("If that agreement is consideration within the meaning of [California Revenue & Taxation Code] section 6006 and Civil Code section 1605, a taxable sale occurred.").
By its own admissions and evidence the Debtor has stated that the complimentary beverages and breakfasts were offered to induce travelers to rent a room at the Debtor's hotel, and that the beverages and breakfasts were offered with every room. With each room rented, therefore, the Debtor and each customer entered into a contract in which the Debtor agreed to provide the customer with a room, plus beverages and breakfast, in exchange for the customer's payment of a certain amount of money. The payment of money was legal consideration for the Debtor's duty to provide not only the room, but the beverages and breakfast. The Debtor was contractually required to provide the beverages and breakfast without charging the customer any further consideration. The Debtor therefore provided the beverages and breakfasts for consideration, and thus fell within the plain meaning of Cal.Rev. & Tax.Code § 6006(d).
Kamp v. Johnson, 15 Cal.2d 187, 99 P.2d 274, 275 (1940) (optometrist's sale of glasses to patients was taxable, even though optometrist billed medical services and glasses as a single lump sum).
This also accords with the Sales and Tax Regulations. Regulation 1603 provides in part as follows:
Cal.Sales & Use Tax Reg. 1603(a). As the Debtor noted, an American Plan hotel provides breakfast, lunch, and dinner. There is no reason to hold that a hotel that provides three meals with the room rate is required to pay sales tax on the meals, but a hotel that provides only a single meal with the room rate is not.
Thus, the finding that the beverages and breakfasts were not provided for consideration was an erroneous finding of fact and conclusion of law.
2. The Complimentary Beverages and Breakfasts Were Not Merely Incidental To The True Purpose of the Contract.
It has also been suggested that the Debtor was the consumer, rather than the retailer, of the complimentary beverages and breakfasts. The basis of this argument is Regulation 1501, reproduced here in part:
Cal.Sales & Use Tax Reg. 1501. The Debtor contends that providing complimentary beverages and breakfasts was a mere incidental to the true object of the contract, the renting of a room.
The true object test does not apply here. Regulation 1501 sets out three separate possibilities as to tax liability on a mixed sale of services and property. California State Board of Equalization v. Advance Schools, Inc. (In re Advance Schools, Inc.), 2 B.R. 231, 235 (Bankr.N.D.Ill.1980). The first is where "the real object sought by the buyer [is] the service per se." Cal.Sales & Use Tax Reg. 1501; Advance Schools, 2 B.R. at 235. The second is where "the real object sought by the buyer . . . [is] the property produced by the service." Cal.Sales & Use Tax Reg. 1501; Advance Schools, 2 B.R. at 235. The third is the truly mixed transaction, where the person is both selling services and additionally is regularly selling tangible personal property to consumers. Cal.Sales & Use Tax Reg. 1501 ("If in addition to rendering service they regularly sell tangible personal property to consumers, they are retailers with respect to such sales and they must . . . file returns and remit tax measured by such sales."); Advance Schools, 2 B.R. at 235.
The Advance Schools court performed an excellent and thorough review of Regulation 1501 and the limited case law in both California and other jurisdictions, and held:
Advance Schools, 2 B.R. at 235-36. "Thus, the true object test should be used where the services and the property are inseparable and is inapplicable where these two elements are distinct." 2 B.R. at 236.
In Advance Schools, the debtor was a correspondence school that enrolled students in California, among other places. With each course, the student received materials, "which generally included books, printed lessons, training kits, and tools, when applicable." 2 B.R. at 232. There was no separate charge to the students for these items. The Board filed a proof of claim, and the debtor objected. The court held that that portion of the tuition price attributable to the materials was severable from the services provided, and held that the debtor was liable for use taxes for those amounts. 2 B.R. at 237-38.
The present case is analogous to Advance Schools. The service provided by the Debtor here was overnight lodging. The beverages and breakfasts provided by the Debtor were not an inseparable part of that service. Indeed, the Debtor's admission that other hotels in the area did not provide such items reinforces that fact. The true object test does not apply, and the beverages and breakfasts were subject to sales tax.
Whether the Board's Use Tax Claim Was Properly Disallowed for Lack of Documentation.
The bankruptcy court apparently agreed with the Debtor that the Board's claim for use taxes should be disallowed because no documentation was attached. We are not persuaded by this argument.
The question is whether the Board's claim is such that documentation must be attached. By specifying that additional documentation is required only where the claim is "based on a writing," the rule plainly implies that there are claims that are not based on a writing, and that therefore do not require any additional documentation. "Base" means "the fundamental part of something: basic principle: ESSENCE, FOUNDATION, BASIS, GROUNDWORK." Webster's Third New International Dictionary (unabridged) 180 (1964) (capitalization in original, indicating synonyms). A claim is therefore based on a writing where the claim is founded upon a writing, or where a writing is a fundamental or essential part of the claim.
Here, the liability for use taxes is based not upon a writing, but upon a state statute. Cal.Rev. & Tax.Code § 6051 (sales tax); Cal. Rev. & Tax.Code § 6201 (use tax). See Spiers v. Ohio Dep't of Natural Resources (In re Jenny Lynn Mining Co.), 780 F.2d 585, 587 (6th Cir.), cert. denied, 477 U.S. 905, 106 S.Ct. 3276, 91 L.Ed.2d 566 (1986) (where debtor had failed to post bond as required by statute, state was not required to attach documentation). There was therefore no need for the Board to attach additional documentation of the Debtor's liability for the use tax.
The Debtor contends that the liability is based upon a writing, that being the assessment of the use tax by the Board. This confuses liability with enforcement. The plain language of the use tax statute indicates that the legal duty to pay the tax is created by the completion of a taxable transaction. As previously noted, a proof of claim may be entitled to prima facie validity without any documentation (e.g., a claim based on
The bankruptcy court incorrectly concluded that the Debtor was not liable for sales tax on the beverages and breakfasts. The court also mistakenly concluded that the Board was required to file documentation to support a claim for use taxes. However, other issues remain, including the amount due. We therefore REVERSE and REMAND to the bankruptcy court for the purpose of hearing further from the parties in the context of our disposition of this case.
It is unnecessary to resolve this issue for the purpose of this appeal. The bankruptcy court may address this question on remand.