Did Illinois classify a multilevel marketer's soy nuts and granola snack bars for the low or high food tax rate?

Plain-English summary

Illinois did not specifically classify the soy nuts or either granola snack bar. Instead, the GIL explained the historical rules for deciding whether food received the low or high state rate.

Off-premises food generally received the then-current 1% state rate plus applicable local taxes, except alcoholic beverages, candy, soft drinks, and food prepared for immediate consumption. The letter defined candy as a sweetened preparation in bars, drops, or pieces, but excluded preparations containing flour or requiring refrigeration.

Seller facilities also mattered. Retailers with seating or on-premises consumption facilities generally used the high rate for all food. A physically partitioned grocery area with separate receipt collection could use the low rate for qualifying grocery items. Without seating, the retailer used a majority-sales test: more than 50% immediate-consumption sales meant the high rate on all food; more than 50% grocery sales meant the low rate except for the listed excluded categories.

What this means for you

Do not classify a snack from its marketing name alone. Review ingredients, refrigeration, preparation, where customers consume it, the seller's physical layout, the collection system, and the seller's food-sales mix. Then verify current rates and rules rather than applying the 2010 figures.

Common questions

Q: Did the GIL say whether the soy nuts and granola bars were candy?
A: No. It provided the candy definition but did not apply it to the three products.

Q: Could a retailer with seating still use the low rate for grocery items?
A: Under the GIL, yes if the grocery area was physically partitioned from the dining area and used a separate means of collecting receipts.

Citations and references

• 86 Ill. Adm. Code 130.310(a), (b)(3), and (b)(6)

Subject

Food

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0002.pdf

Original ruling text

ST 10-0002-GIL 01/12/2010 FOOD
This letter provides a brief summary of when the high rate of tax for food and the low rate of
tax for food apply. See 86 Ill. Adm. Code 130.310. (This is a GIL.)

January 12, 2010

Dear Xxxxx:
This letter is in response to your letter dated December 17, 2009, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
ABC sells nutritional, dietary, and skin care products through a multi-level network of
independent distributors. ABC is considered an ‘MLM’ or multi-level marketer such as
Amway. Our physical location is in CITY/STATE. ABC charges sales tax based upon
the address to which we ship and based upon suggested retail price, with one minor
exception. Orders which have been certified for personal usage by our distributors and
are less than $500 retail value are taxed based upon wholesale pricing. ABC files one
consolidated state sales/excise tax return in lieu of each independent distributor filing a
separate return with your state.
We are launching 3 new products in February 2010. The new products are under our
product line and include soy nuts and 2 flavors of granola snack bars. I am requesting a
formal ruling on the taxability of these new products. I have included copies of the
product labels to assist in the rulings.
Please send the letter rulings or binding opinions by mail or e-mail to my attention. If
you need additional information, please contact me by phone.
Thank you for your assistance in this matter.

DEPARTMENT’S RESPONSE:

Food sold at retail in Illinois is subject to Retailers’ Occupation Tax and Use Tax. Items that
qualify as food, drugs and medical appliances are taxed at the low State rate of 1%. The
Department’s regulation regarding the appropriate tax rates for food can be found at 6 Ill. Adm. Code
130.310.
Food that is to be consumed off the premises where it is sold (other than alcoholic beverages,
candy, soft drinks, and food that has been prepared for immediate consumption) is taxed at the rate
of 1% plus applicable local taxes. Food is defined as any solid, liquid, powder or item intended by the
seller primarily for human internal consumption, whether simple, compound or mixed, including foods
such as condiments, spices, seasonings, vitamins, bottled water and ice. Candy is defined as a
preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate,
fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. Candy does not
include any preparation that contains flour or requires refrigeration.
The manner in which food is taxed depends upon the nature of the establishment that is selling
the food. Retailers who provide seating or facilities for on-premises consumption of food generally
incur tax at the high rate (6.25% State rate) on all food sales (including bulk or grocery type items).
However, if establishments sell both food that has been prepared for immediate consumption and
bulk or grocery type items and also provide facilities for on-premises consumption, the lower rate of
tax (1%) may be charged on the bulk or grocery type items (other than alcoholic beverages, candy,
soft drinks, and food that has been prepared for immediate consumption) if the dining facilities are
physically partitioned from the area where food not for immediate consumption is sold and these
facilities utilize a separate means of collection of receipts. See 86 Ill. Adm. Code 130.310(b)(3).
The Department generally relies on the plain meaning of the term “physically partitioned” as in
separated or divided by a tangible barrier. An eat-in-area that is partially isolated from the generally
sales area of a store by the arrangement of display cases, service counters, or stub walls would
qualify as “physically partitioned.” If establishments have no seating or facilities for on-premises
consumption of food, the tax rate incurred on food sales is determined by whether the majority (over
50%) are bulk or grocery type sales or are sales for immediate consumption. If more than 50% of all
food sales are for immediate consumption, the retailer must charge the high rate on all food sales. If
more than 50% of all food sales are bulk or grocery type items, all food sales are taxed at the low rate
with the exception of hot foods, food that has been prepared for immediate consumption, alcoholic
beverages, candy and soft drinks. See Section 130.310(a). Food for immediate consumption is
defined in the regulation as hot food and food made ready by the retailer to be eaten without
substantial delay after the final stage of preparation by the retailer. See 86 Ill. Adm. Code
130.310(b)(6).
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:msk