Tuesday, July 27, 2010


Food is a very common sales and use tax exemption. Most states have either a full or partial exemption for "grocery store food."

First of all, what do I mean by "grocery store food?" States generally differentiate between food purchased in a restaurant, and food that will be taken home and prepared (usually bought at a grocery store). Unfortunately that leaves a big gray area involving deli's, donuts, the microwave at 7-11, vending machines, and other situations involving food that doesn't meet the clean definitions of restaurant food and grocery store food.

States deal with this mess by having detailed and highly variable rules that always need to be reviewed for the state you're concerned with.

My rule of thumb? If you're a caterer or a restaurant, just about everything you sell will be taxable. If you sell food that has been recently prepared, it's probably taxable. Anything else will vary by state, but is what I would typically call grocery store food. Things like food supplements, candy, juice drinks, alcohol, and pop (or soda if you're from that part of the world) are often taxed, just because of their non-nutritive nature.

Another problem is that restaurants often give employees meals when they're on duty. Remember that the restaurant bought the food for resale and now they're giving it away. That means they may owe use tax on those meals. State laws vary depending on when the meal is given, if it's part of the employees' compensation, and valuation.

If you like to buy "green" and frequent the local farmers' market, fear not. Many states have specific exemptions for farmers who sell their own produce. Not all, but quite a few.

And then there's Ohio. Fifty years ago, if you went to a restaurant, it was for on-premises consumption. So it was taxable. If you went to the grocery store, it was for off-premises consumption and it wasn't taxable. Simple. And Ohio kept that very simple rule.

But consider this statistic that I picked up someplace. 40% of the US population eats at McDonald's at least once a week. And it's probably mostly drive-through, so it's obviously for off-premises consumption. So today, if you walk into a Panera at a service area on the Ohio Turnpike, and order it "to go," they won't charge you tax because you're purchasing for "off-premises consumption." Of course, I then took my tuna salad sandwich (hmmmmm) and ate it in the seating area. Hah! I'm a rebel!

Ohio could have gotten into step with the rest of the states and come up with the more complicated rules. But they kept it easy. Which of course means that they are foregoing tax revenue that the other states are getting. But it sure is great to eat out in Ohio!

So remember this little loophole when you're visiting Ohio. The locals know the game. The only people who order it "to stay" are the tourists.

See the other articles on "food."

The Sales Tax Guy

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different.

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