Are Kudos whole grain bars exempt from Texas sales tax as a food product, or taxable as a snack item?

Subject

Kudos Whole Grain Bars — Exempt As A Cereal Product

Plain-English summary

This is a short correction letter. The Comptroller's office had previously told the taxpayer, in a May 15, 1996 letter, that Kudos whole grain bars were taxable. This new letter withdraws that answer and replaces it with the opposite conclusion.

The reasoning is about how the product is marketed. Kudos bars were previously sold as "snack" bars, which the Comptroller treated as taxable. The product was then remarketed as a "whole grain bar" with ingredients similar to a granola bar -- and granola bars are an exempt food product. Based on that change, the taxpayer asked the Comptroller to reconsider.

The Comptroller agreed: the Kudos bar is a cereal product and is therefore exempt from tax as a food product. As with other letters of this era, the Comptroller notes the opinion is based on the facts presented and could change if the facts were different.

What this means for you

Retailers and distributors selling snack or grain bars

Whether a bar-type product is taxable in Texas can turn on how it is marketed and what it's made of, not just on what a similar product was called before. A product remarketed as a "whole grain bar" with granola-bar-like ingredients was found to be an exempt cereal product, even though the same item had earlier been sold (and taxed) as a "snack" bar.

Manufacturers repositioning a snack product

If you change how a food product is marketed or formulated, it's worth asking the Comptroller to reconsider a prior taxability determination, as this taxpayer did. The outcome here shows that a reclassification from "snack" to "whole grain"/cereal-type product can change the tax result.

Accountants and tax professionals

This letter is a correction of an earlier ruling on the same product, issued about two months after the original. It's a reminder that STAR letters are fact-specific and can be revisited when the underlying facts (here, marketing and ingredients) change.

Common questions

Q: Are Kudos whole grain bars taxable in Texas?
A: No. This letter holds that Kudos whole grain bars are exempt from Texas sales tax as a cereal product and food product.

Q: Were Kudos bars always treated this way?
A: No. They were previously marketed as "snack" bars and treated as taxable. The Comptroller changed its answer after the product was remarketed as a "whole grain bar" with ingredients similar to a granola bar.

Q: Why does this letter exist if the Comptroller already answered this question?
A: This letter corrects an earlier letter from the Comptroller to the same taxpayer, dated May 15, 1996, which had reached a different result.

Q: Could this answer change under different facts?
A: Yes -- the letter states the opinion is based on the facts presented, and the opinion could change if there are additional or different facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9607L1417A01

Original ruling text

July 11, 1996

Dear***:

This is to correct my letter to you dated May 15, 1996, regarding the
taxability of Kudos whole grain bars. I am restating my earlier response
(below) with correction.

I have received your letter regarding the taxability of Kudos whole
grain bars.

Kudos bars were previously marketed as "snack" bars and deemed taxable.
Kudos bars are now marketed as "whole grain bars" with ingredients
similar to the granola bar (an exempt food product item). You asked
that we reconsider the taxability of the Kudos bar.

Response: The Kudos bar is a cereal product and is exempt from tax as
a food product.

This opinion is based on the facts presented. If there are additional
or different facts, the opinion could change.

If you have any questions, please don't hesitate to call me toll free
at 1-800-531-5441, extension 34663. My direct number is 512/463-4663.
You may also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Joan Hale
Tax Policy Division

NOTE: Previous Accession Number 9607331L