Is granola taxed at Illinois's lower grocery/food sales tax rate or its higher general-merchandise/candy rate?

Plain-English summary

A company (referred to here as COMPANY) that sells a granola product at retail locations and through e-commerce called the Illinois Department of Revenue's Sales Tax phone line to ask about the tax rate for its granola. The company had been taxing all its granola sales at the lower grocery/food tax rate, but was told the granola might technically meet the Department's definition of "candy," which would mean it should instead be taxed at the higher general merchandise rate. The company disagreed, pointing to its granola's "clean and natural" ingredient list (organic buckwheat, almonds, honey, dried cherries, pumpkin seeds, coconut oil, unsweetened coconut, puffed amaranth, chia seeds, flaxseed meal, salt, and spices) and noting the product is gluten-free, dairy-free, soy-free, contains no preservatives or flour, and needs no refrigeration. The company also said its granola is always sold in the granola/cereal aisle of stores, never in the snack or candy section. It asked the Department for a formal ruling on which tax rate -- grocery/cereal or general merchandise/candy -- applies.

The Department responded with a General Information Letter. It explained that the Illinois Retailers' Occupation Tax (86 Ill. Adm. Code 130.101) taxes retail sales of tangible personal property, and the parallel Use Tax (86 Ill. Adm. Code 150.101) taxes property purchased at retail for use in Illinois -- together these make up what's commonly called Illinois "sales tax." Under the Department's "Food, Soft Drinks and Candy" regulation (86 Ill. Adm. Code 130.310), food for human consumption to be eaten off the premises where sold -- other than alcoholic beverages, cannabis-infused food, soft drinks, candy, and food prepared for immediate consumption -- is taxed at a lower State rate of 1% plus applicable local taxes. Candy, soft drinks, and food prepared for immediate consumption are instead taxed at the higher State rate of 6.25% plus applicable local taxes. "Food" is defined broadly under 130.310(c)(1) as any solid, liquid, powder, or item intended by the seller primarily for human internal consumption.

"Candy" is defined as a preparation of sugar, honey, or other natural or artificial sweeteners combined with chocolate, fruits, nuts, or other ingredients or flavorings, in the form of bars, drops, or pieces -- but candy specifically excludes any preparation that contains flour or requires refrigeration, even if it otherwise meets the definition. The Department laid out the factors used to test whether an item is "candy" under 130.310(d)(7)(B) through (E): whether the ingredient list contains "flour" (any type disqualifies it as candy), whether the item requires refrigeration (disqualifies it), whether it contains sugar/honey/other sweeteners, and whether it takes the form of bars, drops, or pieces. The regulation's examples of items that are not candy include cereals, because cereals are not in bar/drop/piece form (130.310(d)(7)(G)). However, the Department noted that even "cereal" sold in bar form would be taxed as candy if it lacks flour, contains sweeteners, and doesn't require refrigeration.

Applying this to granola specifically, the Department concluded that granola is "a food item that may be low rate or high rate depending on its preparation" (130.310(d)(7)(F)(xiv)): granola sold as a cereal (not in bars, drops, or pieces) is taxed at the low rate regardless of whether it contains flour, is refrigerated, or has sweeteners, simply because it isn't in bar/drop/piece form; but granola in bar form is treated like candy and taxed at the high rate unless it contains flour or requires refrigeration. The Department did not tell the company definitively which rate applies to its own product -- it did not confirm the company's specific granola is sold loose versus in bar form -- leaving that fact-specific determination to the company.

What this means for you

Granola, cereal, and snack-food sellers

If you sell granola or a similar cereal-type product, the form it's sold in is the single most important factor for Illinois sales tax purposes -- not the ingredients, sweetness, or how "healthy" the product is. Loose granola, granola clusters, or granola sold as a bulk/bagged cereal is taxed at the low 1% food rate (plus local taxes) because it isn't in "bars, drops, or pieces." But granola pressed into bar form crosses into "candy" territory under 86 Ill. Adm. Code 130.310(d)(7), and will be taxed at the higher 6.25% rate (plus local taxes) unless the bar itself contains flour or requires refrigeration. A completely natural, additive-free granola bar can still be taxed as candy if it's sweetened, doesn't contain flour, and doesn't need refrigeration -- ingredient purity does not exempt it.

Retailers taxing packaged food products generally

This GIL is a reminder to check the physical form of a product, not just its marketing category or where it's shelved in your store. The company here noted it always displays its granola in the cereal aisle, not the candy aisle -- but the Department's answer makes clear that shelf placement is not the controlling factor; the regulatory test turns on flour content, refrigeration requirements, sweetener content, and bar/drop/piece form. Products that seem obviously "grocery" items by common sense can still meet the technical "candy" definition if sold in bar form without flour or refrigeration.

Accountants and tax professionals

Walk clients through the same sequential test the Department used: (1) is the item "food" under 130.310(c)(1)? (2) is it sold in bars, drops, or pieces? If not, it is very likely taxed at the low rate as a cereal-type food regardless of its other characteristics. (3) If it IS in bar/drop/piece form, does it contain flour, or does it require refrigeration? Either one takes it out of the "candy" definition and back to the low rate. Only a sweetened bar/drop/piece product with no flour and no refrigeration requirement lands in "candy" at the higher rate. Note this letter does not resolve whether the requesting company's own granola is sold loose or in bar form -- clients need to identify their own product's actual form before applying this framework, and a business wanting a binding determination on its specific product should request a Private Letter Ruling.

Common questions

Q: Is granola taxed as food or as candy in Illinois?
A: It depends on the form. Granola sold loose or as a cereal (not in bars, drops, or pieces) is taxed at the lower 1% food rate regardless of its ingredients. Granola pressed into bar form is treated as "candy" and taxed at the higher 6.25% rate, unless the bar contains flour or requires refrigeration.

Q: What's the general Illinois sales tax rate, and what's the lower rate for food?
A: Illinois taxes most retail sales at 6.25%. Food for human consumption to be eaten off the premises where sold is taxed at a lower 1% rate, except for alcoholic beverages, cannabis-infused food, soft drinks, candy, and food prepared for immediate consumption, all of which remain at 6.25%. (86 Ill. Adm. Code 130.310)

Q: What makes something "candy" under the Illinois regulations?
A: A preparation of sugar, honey, or other sweeteners combined with chocolate, fruit, nuts, or other ingredients, in the form of bars, drops, or pieces -- but only if it does NOT contain flour and does NOT require refrigeration. If a product contains flour or needs refrigeration, it is not "candy" even if it otherwise fits the definition. (86 Ill. Adm. Code 130.310(d)(7))

Q: Does having natural, healthy, or additive-free ingredients keep a product out of the "candy" category?
A: No. The Department's test does not consider whether ingredients are organic, natural, or perceived as healthy -- only whether the product contains flour, requires refrigeration, contains a sweetener, and is in bar/drop/piece form. The company's granola in this letter was organic and free of preservatives, gluten, dairy, and soy, but none of that determines its tax treatment.

Q: Did the Department definitively rule on this specific company's granola?
A: Not entirely. The Department explained the general food-versus-candy framework and specifically addressed how it applies to granola based on form, but as a GIL rather than a Private Letter Ruling, it did not issue a binding determination confirming exactly how the company's own product is packaged and sold. A business wanting a binding answer on its specific product needs to request a PLR under 2 Ill. Adm. Code 1200.110.

Citations and references

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposed on retail sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax imposed on tangible personal property purchased at retail)
• 86 Ill. Adm. Code 130.310 (Food, Soft Drinks and Candy -- State tax rates: 1% for food, 6.25% for candy/soft drinks/food prepared for immediate consumption)
• 86 Ill. Adm. Code 130.310(c)(1) (definition of "food")
• 86 Ill. Adm. Code 130.310(d)(7)(B) (candy factor: flour disqualifies)
• 86 Ill. Adm. Code 130.310(d)(7)(C) (candy factor: refrigeration disqualifies)
• 86 Ill. Adm. Code 130.310(d)(7)(D) (candy factor: sweeteners required)
• 86 Ill. Adm. Code 130.310(d)(7)(E) (candy factor: must be in bars, drops, or pieces)
• 86 Ill. Adm. Code 130.310(d)(7)(G) (cereals not in bar/drop/piece form are not candy)
• 86 Ill. Adm. Code 130.310(d)(7)(F)(xiv) (granola specifically: low rate as cereal, high rate as candy bar unless flour or refrigeration required)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/st23-0026-gil.pdf

Original ruling text

ST-23-0026-GIL 08/01/2023 FOOD
This letter discusses the State tax rate applicable to sales of food. See 86 Ill.
Adm. Code 130.310 (This is a GIL.)
August 01, 2023

NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated July 07, 2022, 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 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:

I called in to the Department of Revenue Sales Tax phone line today to
inquire about the sales tax rate for a granola product our company,
COMPANY (EIN: ##-#######) sells at retail locations, as well as via ecommerce through our website (ADDRESS2). They suggested I reach out
to the Legal Services Office directly as there seems to be a grey area in
my inquiry.
We are currently taxing all granola purchases at the grocery tax rate. It
was recently brought to my attention that our granola technically is defined
as a candy (per the definition of candy by the Illinois Department of
Revenue) and as such should be taxed at the higher general merchandise
tax rate. This is completely contradictory of every clean and natural
ingredient we have in our granola. Below see the complete ingredient list.
COMPANY. PRODUCT Granola - INGREDIENT LIST:

COMPANY/ NAME
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August 01, 2023
organic buckwheat, organic almonds, honey, organic dried cherries,
organic raw pumpkin seeds, coconut oil, organic unsweetened coconut,
organic puffed amaranth, organic chia seeds, organic flaxseed meal, salt,
spices. CONTAINS: ALMONDS AND COCONUT
Our granola is currently sold at several retail locations in the CITY area
and is always sold in the granola/cereal aisle, never in the snacks or
candy section. We are a gluten free, dairy free and soy free product and
include absolutely no preservatives, nor do we include flour (because we
use gluten-free grains) or require refrigeration.
This letter is to request a formal letter ruling from the Department of
Revenue Legal Services Office on the appropriate sales tax rate
(grocery/cereal tax rate or general merchandise/candy tax rate) we should
be assigning to our granola products.
I look forward to hearing from you with a response at my business mailing
address below.
DEPARTMENT’S RESPONSE:
The Illinois 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. In Illinois, 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.
Please see the Department’s regulation entitled “Food, Soft Drinks and Candy” at 86 Ill.
Adm. Code 130.310 which can be found on the Department’s website. As you can see
in the regulation, food for human consumption that is to be consumed off the premises
where it is sold (other than alcoholic beverages, food consisting of or infused with adult
use cannabis, soft drinks, candy, and food that has been prepared for immediate
consumption) is taxed at the lower State tax rate of 1% plus applicable local taxes.
In contrast, candy, soft drinks, and food that has been prepared for immediate
consumption are taxed at the higher State sales tax rate of 6.25% plus applicable local
taxes. The regulation defines “food” 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. 86 Ill. Adm. Code 130.310(c)(1).
“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

COMPANY/ NAME
Page 3
August 01, 2023
in the form of bars, drops, or pieces. “Candy” does not include any preparation that
contains flour or requires refrigeration. Thus, if a product contains flour or requires
refrigeration, it would not be considered “candy” even if it meets all the other elements
of the definition.
To determine whether an item meets the definition of “candy”, it must be
analyzed using the factors listed below:
B) Flour: Products whose ingredient list contain the word “flour”, regardless of
the type of flour (e.g., wheat, rice) are not candy. . . .
C) Refrigeration: Items that require refrigeration are not considered to be candy.
...
D) Sweeteners: Candy is limited to products that contain sugar, honey, or other
natural or artificial sweeteners. . . .
E) Bars, drops or pieces: Items must be in the form of bars, drops or pieces to
be considered candy.
86 Ill. Adm. Code 130.310(d)(7)(B) through (E).
The regulation goes on to provide examples of items that are not considered candy
because they do not meet the requirements of subsections (d)(7)(B) through (D). This
list includes cereals as they are not in the form of bars, drops or pieces. 86 Ill. Adm.
Code 130.310(d)(7)(G).
However, even “cereal” in the form of bars would be taxed at the high rate if it does not
contain flour, contains sweeteners, and does not require refrigeration. As such, granola
is a food item that may be low rate or high rate depending on its preparation. For
instance, granola as cereal would be low rate, regardless of whether it has flour, is
refrigerated, or has sweeteners because it is not in “bars, drops, or pieces”. Like cereal,
granola in a bar form would be candy unless it contains flour or requires refrigeration.
86 Ill. Adm. Code 130.310(d)(7)(F)(xiv).
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,

Kimberly Rossini
Associate Counsel

COMPANY/ NAME
Page 4
August 01, 2023
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