Is a kombucha-based beverage with added fruit juice and no more than 5% juice content taxed as a 'soft drink' at Illinois's 6.25% sales tax rate?

Plain-English summary

The Illinois Department of Revenue was asked whether a line of 25 kombucha flavors qualifies as a "soft drink" for Retailers' Occupation Tax purposes. Illinois taxes "soft drinks" at the full 6.25% state sales tax rate (rather than the lower rate for groceries), and defines a soft drink as a non-alcoholic beverage containing natural or artificial sweeteners, as long as it doesn't contain milk products and doesn't contain more than 50% fruit or vegetable juice by volume.

The retailer's kombucha products were based on kombucha culture, black tea, green tea, and kiwi juice, with various non-concentrated fruit juices and flavorings added depending on the flavor. The label listed only 2% to 5% juice content and stated "0g Added Sugars." The retailer argued the products should not be classified as soft drinks.

The Department disagreed with that framing. It explained that Illinois's list of "natural and artificial sweeteners" is not exhaustive, and that fruit juice used to sweeten a beverage counts as a natural sweetener under the rule — separate from whether the label discloses "added sugars." Because the kombucha flavors contained fruit juice used to sweeten the beverage during or after fermentation, and because the juice content (2-5%) was nowhere near the 50%-juice exclusion threshold, the Department concluded that, based on the information provided, the products appear to qualify as taxable "soft drinks."

This is a General Information Letter (GIL), not a Private Letter Ruling (PLR). The Department explained it declined to issue a binding PLR here because it prefers to issue PLRs to the manufacturer of a product (who has full knowledge of ingredients and production), not to a retailer reselling someone else's branded product. This letter also formally superseded an earlier GIL (ST 21-0016-GIL) that had addressed the same or a similar question.

What this means for you

Beverage retailers and grocers

If you sell a kombucha, tea, or juice-adjacent beverage, don't assume "no added sugar" on the label settles the sales-tax question. Illinois looks at whether any ingredient — including fruit juice itself — functions as a sweetener, and separately checks whether juice content exceeds 50% by volume. A drink can be sugar-free by marketing standards and still be a taxed "soft drink" under 86 Ill. Adm. Code 130.310.

Kombucha and functional-beverage manufacturers

The Department noted it prefers to rule on tax classification questions directly with manufacturers, since they control the ingredient list and production process end-to-end. If you make the product, you're in a better position to get a binding Private Letter Ruling than a retailer who resells it under your label. This GIL is not binding on the Department or on anyone but is useful as guidance on how the Department is likely to analyze similar low-juice, kombucha-style products.

Accountants and tax professionals

Confirm which of your clients' products fall on which side of the 50%-juice line in 86 Ill. Adm. Code 130.310(d)(6)(E)(vi), and don't rely solely on nutrition-panel sugar disclosures. Also remember the GIL-vs-PLR distinction here: this letter is explicitly non-binding, was issued because the Department declined to issue a binding PLR to a non-manufacturer retailer, and it superseded an earlier GIL (ST 21-0016-GIL) on the same topic — meaning Illinois's own read of this fact pattern has already shifted at least once.

Common questions

Q: Does having very low juice content (2-5%) make a drink exempt from the soft-drink tax rate?
A: No. The 50%-or-more juice exclusion in 86 Ill. Adm. Code 130.310(d)(6)(E)(vi) only removes high-juice beverages from the "soft drink" category. Low juice content doesn't exempt a drink — if anything, it makes the exclusion clearly inapplicable, which is what happened here.

Q: If the label says "0g Added Sugars," is the drink automatically not a soft drink?
A: No. The Department found that fruit juice used to sweeten a beverage counts as a natural sweetener under 86 Ill. Adm. Code 130.310(d)(6)(C), regardless of how "added sugars" is disclosed on the Nutrition Facts panel. The sweetener analysis and the added-sugar labeling disclosure are not the same test.

Q: Why didn't the Department issue a binding Private Letter Ruling instead of this GIL?
A: The Department stated it generally prefers to issue PLRs to the manufacturer of the product at issue, since the manufacturer has the fullest knowledge of ingredients and production. The retailer here was not the manufacturer, so the Department issued a non-binding GIL instead, while still trying to give the retailer enough information to determine the proper tax rate.

Q: Can this letter be relied on by other kombucha sellers?
A: No. A GIL is not a statement of Department policy and is not binding on the Department, under 2 Ill. Adm. Code 1200.120. It only directs the reader to the relevant regulations and shows how the Department reasoned about this specific set of facts.

Citations and references

Statutes and rules:

• 35 ILCS 120/2-10 (statutory basis for the "soft drinks" definition)
• 86 Ill. Adm. Code 130.310 (soft drinks taxed at the 6.25% state rate); 130.310(d)(6)(B) (definition of soft drinks); 130.310(d)(6)(C) (natural/artificial sweeteners); 130.310(d)(6)(E)(vi) (over-50%-juice exclusion)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on retail sales)
• 86 Ill. Adm. Code 150.101, 150.130 (Use Tax and retailer's credit)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure); 1200.120 (General Information Letters are non-binding)

Related guidance:

• ST 21-0016-GIL (superseded by this letter)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0033-gil.pdf

Original ruling text

ST-21-0033 08/04/2021 RETAILERS’ OCCUPATION TAX
This letter concerns the 6.25% State rate of tax applicable to soft drinks. See 86
Ill. Adm. Code 130.310. NOTE: This letter supersedes ST 21-0016-GIL. (This
is a GIL.)
August 4, 2021
Dear NAME:
This letter is in response to your letter dated December 16, 2020, in which you
requested 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 Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling
request is within the discretion of the Department. The Department will respond to all
requests for private letter rulings either by issuance of a ruling or by a letter explaining
that the request for ruling will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). Further,
the Department’s regulations regarding Private Letter Rulings provide that “[i]f there is
case law or there are regulations dispositive of the subject of the request, the
Department will decline to issue a letter ruling on the subject." 86 Ill. Adm. Code
1200.110(a)(3)(D). The Department recently met and determined that it would decline to
issue a Private Letter Ruling in response to your request. We hope, however, the
following General Information Letter will be helpful in addressing your questions. In your
letter you have stated and made inquiry as follows:
BUSINESS1, Inc. is a STATE based corporation and does business as a
food retailer in Illinois. We would like to request a private letter ruling as to
whether or not BUSINESS2 meets the definition of a soft drink for
purposes of the Retailers’ Occupation Tax.
BUSINESS1 is not currently under audit by the Illinois Department of
Revenue.
Per the requirements of Title 2 Part 1200 Section 1200.110(b):
1) Statement of Facts

BUSINESS1
PAGE 2
August 4, 2021

BUSINESS2 is a product line currently consisting of 25 flavors. All of the
ingredient lists on their packages follow the same format: BUSINESS2’s
Kombucha (kombucha culture, black tea, green tea, kiwi juice),
(various non-concentrated fruit juices & flavorings), and 100% pure love!!!
Organically produced.
Please see Appendix A for the exact wording of the ingredient list for each
variety in question. The Nutrition Facts panel on each package states
“Includes 0g Added Sugars”. All products list a juice content of between
2% and 5% on the label.
Illinois Administrative Code Section 130.310(d)(6)(B) defines a soft drink
as:
“On and after September 1, 2009, the term “soft drinks” means nonalcoholic beverages that contain natural or artificial sweeteners. “Soft
drinks” do not include beverages that contain milk or milk products, soy,
rice or similar milk substitutes, or greater than 50% of vegetable or fruit
juice by volume. (Section 2-10 of the Act)”
Illinois Administrative Code Section 130.310(d)(6)(C) expands on what
constitutes a natural or artificial sweetener:
“Natural and artificial sweeteners include, but are not limited to, corn
syrup, high fructose corn syrup, invert sugar, dextrose, sucrose, fructose,
lactose, saccharose, fruit juice concentrates, molasses, evaporated cane
juice, rice syrup, barley malt, honey, Rebaudioside A (Reb A), erythritol,
xylitol, aspartame, saccharin, acesulfame K, sucralose and sorbitol.
Beverages that list in the ingredient list natural and/or artificial sweeteners
including, but not limited to, those listed in this subsection (d)(6)(C), meet
the definition of “soft drinks”. (Note, for purposes of this Section, natural
and artificial sweeteners do not include natural or artificial flavors.)”
Analysis: The section of the Administrative Code defining a soft drink
consists of three qualifying conditions. In order to be considered a soft
drink under the definition, the beverage must:
a) contain natural or artificial sweeteners
b) not contain milk products or similar substitutes
c) contain 50% or less vegetable or fruit juice
None of the products listed in Appendix A contain milk products or similar
substitutes and all contain less than 50% vegetable or fruit juice. The

BUSINESS1
PAGE 3
August 4, 2021
question at hand is do any of the ingredients listed qualify as “natural or
artificial sweeteners” for the purposes of the definition, and if so, which
ones?
2) We submit Appendix A, a listing of ingredients for each product in
question as the only other document relevant to this request.
3) The tax period at issue is all time periods on and after the date of the
Department’s private letter ruling.
4) To the best of our knowledge, the Department has not previously ruled
on this or a similar issue for BUSINESS1. We have not previously
requested and subsequently withdrawn a ruling request on this issue:
5 &6) To the best of our knowledge, no State of Illinois authority has
issued an opinion as to whether or not the products in question meet the
legal definition of a soft drink for the purpose of the Retailers’ Occupation
Tax.
7) This request contains no trade secrets.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property at retail to purchasers for use
or consumption. See 86 Ill. Adm. Code 130.101. Use Tax is imposed on the privilege of
using, in this State, any kind of tangible personal property that is purchased anywhere
at retail from a retailer. See 86 Ill. Adm. Code 150.101. These taxes comprise what is
commonly known as “sales tax” in Illinois. If the purchases occur in Illinois, the
purchasers must pay the Use Tax to the retailer at the time of purchase. The retailers
are then allowed to reduce the amount of Use Tax they must remit by the amount of
Retailers' Occupation Tax liability which they are required to and do pay to the
Department with respect to the same sales. See 86 Ill. Adm. Code 150.130.
In Illinois, soft drinks are taxed at the State sales tax rate of 6.25% regardless of
the type of establishment where they are sold, e.g., a grocery store, restaurant, or
vending machine. See 86 Ill. Adm. Code 130.310(d)(6). The term “soft drinks” means
non-alcoholic beverages that contain natural or artificial sweeteners. "Soft drinks" do not
include beverages that contain milk or milk products, soy, rice or similar milk substitutes,
or greater than 50% of vegetable or fruit juice by volume. 35 ILCS 120/2-10; 86 Ill.
Adm. Code 130.310(d)(6)(B).
Several examples of natural and artificial sweeteners are listed in Section
130.310(d)(6)(C), and beverages that list any of these sweeteners as ingredients meet

BUSINESS1
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August 4, 2021
the definition of “soft drinks.” However, this list is not exhaustive. Fruit juices containing
greater than 50% fruit juice are not soft drinks, even if these beverages contain natural
or artificial sweeteners. 130.310(d)(6)(E)(vi).
Each of the 25 kombucha flavors discussed in your letter is composed of
BUSINESS2 as a base, which consists of kombucha culture, black tea, green tea, and
kiwi juice.
Other ingredients include various non-concentrated fruit juices and
flavorings, depending on the flavor. Kombucha culture often utilizes a SCOBY, which is
a “Symbiotic Culture of Bacteria and Yeast,” and the kombucha culture included in
these products appears to do the same. According to BUSINESS2 website, a SCOBY
“consumes sugar and caffeine during fermentation.” However, some BUSINESS2
products use kiwi juice instead of sugar during fermentation.
Generally, the Department prefers to issue private letter rulings to the
manufacturer of the product at issue. The manufacturer has the most knowledge of the
ingredients and production processes regarding a specific product. However, the
Department attempts to provide sufficient information for a retailer to determine the
proper tax rate for a product.
The Department will review the label and the ingredients listed on the product to
determine the proper tax rate. According to each product’s listed ingredients provided
to the Department, the kombucha flavors identified in your letter and exhibit contain fruit
juice, but do not contain greater than 50% fruit juice. As such, the products are not
excluded as soft drinks under Section 130.310(d)(6)(E)(vi). It appears juice or fruit
puree is added after fermentation to sweeten the beverage. Fruit juice, when used to
sweeten a beverage, is considered a natural sweetener for the purposes of the
regulation. Therefore, from the information the Department has been provided, it
appears the products would be classified as “soft drinks.”
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,

Alexis K. Overstreet
Associate Counsel
AKO:rkn