Illinois – Taxability of Protein Bars and Drinks

SALT Report 3009 – The Illinois General Assembly issued a general information letter regarding the application of sales tax to diet protein bars and beverages.  The Taxpayer operates a weight loss program and diet food business.  As part of its service the Taxpayer sells drinks, protein bars, and snack items, as well as items that require preparation, such as soups and omelet mixes.  The Taxpayer is currently charging his customers sales tax at the rate of 6.25% on all items because he was advised that these foods were considered ‘immediately consumable.’

However, after researching the matter, the Taxpayer believes that these items should qualify for the reduced food rate because they are more in line with ‘grocery’ items.  The Taxpayer stated that it does not manufacture or prepare any of the items; it does not offer any type of dining or seating area, and the items are sold at room temperature. Further, the Taxpayer stated that these items are sold as part of a weight loss program, and in most cases, clients will purchase multiples of each item with the intention of consuming them at a later time.

In its response, the Department stated that under the provisions of 86 Ill. Adm. Code 130.310, food that is to be consumed off the premises is taxed at the lower state tax rate of 1% plus any applicable local taxes.  However, alcoholic beverages, candy, soft drinks and foods that are designed for immediate consumption are taxed at the higher state sales tax rate of 6.25% plus applicable local taxes.

The regulation defines “soft drinks” as “non-alcoholic beverages that contain natural or artificial sweeteners; but excludes beverages that contain milk or milk products, soy, rice or milk substitutes, or that contain more than 50% vegetable or fruit juice by volume. Therefore, if a beverage contains a natural or artificial sweetener but also contains milk or milk products, soy, rice or similar milk substitutes, or more than 50% vegetable or fruit juice by volume, it would not be considered a “soft drink” instead, instead it would fall within the definition of “food” and qualify for the lower tax rate.

Also, the regulation imposes the 6.25% state general merchandise tax rate on candy. 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.” However, candy does not include items that contain flour or require refrigeration. Therefore, if a product contains flour or requires refrigeration, it would not be considered “candy” even if it meets every other aspect of the definition.  Further, the Department warned that because the definition of candy changed, the tax rate for certain products went from the 1% rate to the state 6.25% general merchandise rate.

Based on the above, the Taxpayer was advised that tax rate applicable to the food and beverage products would be determined by the list of ingredients.

For Further Information

Illinois Department of Revenue – ST 13-0040-GIL