WAC 244

Restaurants & Retailers of Prepared Food

Exemptions - Sales of food products for human consumption.

Exemptions -- Use of food and food ingredients.

Food and food ingredients. Effective 06/14/07

Food and food ingredients.

Food and food ingredients The Department is amending WAC 458-20-244 to recognize the following legislation: 2ESSB 6143 (chapter 23, Laws 2010), which extended sales tax to sales of candy and bottled water; E2SHB 1597 (chapter 106, Laws of 2010), which clarified that retail sales tax applies to the gross vending machine proceeds from sales of soft drinks; and SB 5470 (chapter 483, Laws of 2009), which provides a sales tax exemption for sales of meals provided at qualified low-income senior housing facilities. Minor editing changes were also made.

WAC 458-20-244 (Rule 244) Food and food ingredients provides guidelines for determining if food or food ingredients qualify for retail sales tax and use tax exemptions provided by RCW 82.08.0293 and 82.12.0293. The Department amended Rule 244 to recognize Initiative 1107, passed by the voters in November 2010 and codified as chapter 2, Laws of 2011. Initiative 1107, in part, repealed the retail sales tax imposed on sales of bottled water and candy by chapter 23, Laws of 2010, 1st Special Session.

Food and Food Ingredients Provides guidelines for determining if food or food ingredients qualify for the retail sales tax and use tax exemptions under RCW 82.08.0293 and 82.12.0293.

Food products. Revised effective 1/1/04.

Donations to meal providers

Processing Perishable Meat Products. The Department issued Excise Tax Advisory (ETA) 3122.2011 Processing Perishable Meat Products. This ETA was originally issued as ETA 2035 in March 2007 to explain who is entitled to the preferential business and occupation (“B&O”) tax rate based on the Washington State Supreme Court decision, Agrilink Foods, Inc. v. Washington State Department of Revenue, 153 Wn.2d 392 (2005). The following header has been added to this ETA to explain that it does not apply during the period of June 1, 2010 through December 1, 2010.

FOOD PRODUCTS SOLD THROUGH CONVENIENCE FOOD SALES LOCATIONS Cancelled effective 6/30/04. Information is out-of-date and is covered in rule.

DIETARY SUPPLEMENTS Cancelled effective 6/30/04. Information is out-of-date and is covered in rule.

DONATIONS TO MEAL PROVIDERS Revised 2/2/09 See ETA 3082.2009

Sales Tax Repealed on Bottled Water, Candy and Gum, as of December 2, 2010

Questions and Answers on Spirits Tax for Retailers

Food and Food Ingredients--Sales Tax Changes--Effective 1/1/04.

Candy and Chewing Gum Subject to Sales Tax

Carbonated Beverage Tax Repealed

Claims of Constitutional Impairment of Contract made under Initiative 1183

Sales of Bakery Items--Intended to replace discussion in original food notice based on 2003 legislation

Employee B&O Credit for Candy Manufacturers

B&O Tax Preferences for Perishable Meat Products and Fruit or Vegetable Products Updated 11/17/10

Taxability of Soft Drinks

Sales Tax Changes for Dietary Supplements--Intended to replace discussion in original food notice based on 2003 legislation

Personal Chefs

Bottled Water Subject to Sales Tax

B&O Credit for Candy Manufacturers Repealed

Personal Chefs

Sealed Beverages--Sales Tax Changes--Intended to replace discussion in original food notice based on 2003 legislation

Sales of Charcoal Briquettes, Wood Chips, and Similar Items to Restaurants

Qualifying Florists Exempt from Destination Sales Tax Sourcing

Processors of Perishable Meat Entitled to Lower B&O Tax Rate Effective December 2, 2010

"Prepared Food" Tax Changes

Prepared Food Tax Changes--Intended to replace discussion in original food notice based on 2003 legislation

How to tax soft drinks and other beverages

Retailers Subject to Temporary Carbonated Beverage Tax

B&O Credit for Candy Manufacturers Repealed

Personal Chefs

Bottlers and Distributors Subject to Temporary Carbonated Beverage Tax

Determining Whether Sales Tax Applies to Sealed Beverages

King County Food and Beverage Tax Expires

Sales Tax Repealed on Bottled Water, Candy and Gum, as of December 2, 2010

B&O Tax Preferences for Perishable Meat Products and Fruit or Vegetable Products

King County Food and Beverage Tax Expires

Changes to the B&O Tax Preferences for Perishable Meat Products and Fruit or Vegetable Products

RETAIL SALES TAX -- NURSING HOMES -- MEALS FOR PATIENTS PURCHASED FROM CATERER. Where nursing home chooses to purchase prepared meals for its patients, the caterer is engaging in a retail activity and its sales of meals to the nursing home are subject to retail sales tax.

RETAIL SALES/USE TAX -- HOSPITALS -- MEALS FOR PATIENTS PURCHASED FROM CATERER. Where a hospital chooses to purchase prepared meals for its patients, the caterer is engaging in a retail activity and its sales of meals to the hospital are subject to retail sales tax

SALES/USE TAX -- NOT-FOR-PROFIT HOSPITAL -- MEALS FOR ELDERLY OR LOW-INCOME PATIENTS PURCHASED FROM CATERER. The sales/use tax exemption for meals served by not-for-profit hospital to elderly, disabled or low-income persons does not apply to meals purchased by the hospital from a third party when the meals are provided as part of the services rendered to such patients.

Det No. 91-280, 11 WTD 463 (1992), and Det. No. 89-453A, 10 WTD 302 (1990) are hereby overruled to the extent they are inconsistent with the decision herein.25 WTD 116 Dec 20, 2006

SALES AND USE TAXES -- EXEMPTION -- HOSPITALS -- PATIENT MEALS. A hospital contracts with a food management company for the company to procure unprepared food products which are resold as such to the hospital. The company then supervises the hospital's food service staff on site in preparing patient meals from the unprepared food products. The food service company is not selling prepared foods or meals to the hospital. Instead, it is providing food service management. No sales or use tax is owing on patient meals.

SALES/USE TAX -- NOT FOR PROFIT HOSPITAL -- MEALS FOR ELDERLY OR LOW INCOME PATIENTS. The sales/use tax exemption for meals served by not-for-profit hospital to elderly, disabled or low-income persons does not apply when the meals are provided as part of the services rendered to such patients.

Det No. 91-280, 11 WTD 463 (1992), and Det. No. 89-453A, 10 WTD 302 (1990) are hereby overruled to the extent they are inconsistent with the decision herein.25 WTD 116 Dec 20, 2006

RETAIL SALES TAX -- EXEMPTION -- FOOD PRODUCTS -- DRIED AND POWERED HERBS SOLD IN CAPSULIZED FORM. The sales tax exemption does not apply to dried or powdered herbs used for perceived health benefits. The rule extends the exemption to "powdered spices and herbs" as well as to herbal extracts. Dietary supplements are preparations taken in addition to one's normal diet for health purposes and are not pure herbs sold for eating or for use in flavoring food.

RETAIL SALES TAX -- FOOD PRODUCT EXEMPTION -- BREWING SUPPLIES. The food product exemption applies to the sale of products which are reasonably and commonly expected to be consumed by humans. In applying the exemption we look to the nature of the item being soldnot to where and how the item is sold.

RETAIL SALES TAX -- FOOD PRODUCT EXEMPTION -- BREWING SUPPLIES. Corn syrup, unhopped malt extracts, whole grains, yeast, and other items which are sold by a home brewing store and which are reasonably and commonly expected to be consumed by humans are subject to the exemption. Processing agents, hops, and home brewing kits which include nonfood items are not entitled to the exemption.

RETAIL SALES TAX EXEMPTION -- FOOD HERBS AND HERBAL EXTRACTS DIETARY SUPPLEMENTS OR ADJUNCTS. If a bulk herb or herbal extract is commonly and reasonably expected to be used only as a dietary supplement or for medicinal purposes, it is subject to tax.In contrast, bulk herbs or herbal extracts that are commonly and reasonably expected to be used as a cooking ingredient, spice or tea are exempt food products. In determining whether an item is commonly and reasonably to be used for medicinal or dietary supplement purposes, the packaging of the item may be important.

RETAIL SALES TAX EXEMPTION FOOD PRODUCTS POWDERED DRINK MIXES SOLD PRIMARILY TO ATHLETES AND BODYBUILDERS DIETARY SUPPLEMENTS OR ADJUNCTS. Sales of powdered drink mixes, which contain carbohydrates and/or protein (and may contain vitamins, minerals, and/or fat) are exempt from retail sales tax under RCW 82.08.0293 as food products. These products fall within the common and ordinary meaning of food, as material containing essential body nutrients, such as carbohydrates, fats, or proteins that is taken in and assimilated by an organism to maintain life and growth.

RETAIL SALES TAX -- NOVELTY ITEMS -- SALES BY BAKERY. The retail sales tax applies to sales of food containers and other novelty items sold by a bakery, if novelty items and food products are sold as a package, the retail sales tax applies unless the value ofthe non-food items is less than the value of the food or the price of the non-food items is stated separately.

RETAIL SALES TAX -- USE TAX EXEMPTION -- FOOD PRODUCTS -- BEVERAGES. Coffee, tea, milk and other noncarbonated beverages are included in the definition of "food products" for purposes of the exemption provisions of RCW 82.08.0293 and 82.12.0293; carbonated of the exemption provisions of RCW 82.08.0293 and 82.12.0293; carbonated beverages are not included as exempt food products.

RETAIL SALES TAX -- EXEMPTION -- SALES AT MALLS -- BAKERY ITEMS. Sales of bakery items by retail bakery located in shopping mall are exempt of retail sales tax where items are enclosed in metal tins, sealed in large paper bags, or wrapped in small paper bags with instruction for reheating at home. Such sales not found to be sold in a way to invite immediate consumption where seller did not provide tables, chairs, or counters for consumption of food or locate near food courts and provide trays, dishes or tableware to facilitate the immediate consumption of food.

B&O TAX -- FOOD PRODUCTS. The gross proceeds from sales of food products in Washington are subject to the B&O tax.

B&O TAX -- RETAIL SALES TAX -- FOOD SERVICES -- EXECUTIVE DINING ROOM. Receipts from management fees and charges for food, labor and related supplies consumed by a food service contractor in providing a food service for a company's executive dining room are subject to retailing B&O and retail sales tax.

SALES TAX -- AUDITS TEST PERIODS REASONABLE RESULTS. The use of test periods is an appropriate audit procedure if proper consideration is given to factors which could lead to other than reasonable results. Test period found acceptable where taxpayer purchases were used to project taxable sales and where an adjustment was made for the fact that taxable items sold more slowly than exempt items at a grocery store.

RETAIL SALES TAX FOOD PREPARATION. A person who prepared and served food in private homes for consumption by household members and their guests was not required to have a food and beverage service workers permit under RCW 69.09.010, and was therefore not required to collect retail sales tax under the food products exemption in effect prior to January 1, 2004.

RETAIL SALES TAX -- EXEMPTION -PURCHASE OF MEALS NONPROFIT HOSPITAL. A nonprofit hospitals purchase of meals from third party vendors, which the hospital provided to its senior citizen, disabled, or low-income patients, qualifies for the RCW 82.08.0293(3)(b) exemption from retail sales tax.

RCW 82.08.925:RETAIL SALES TAX -- EXEMPTION - DIETARY SUPPLEMENTS PRESCRIPTION -- ARNP. For periods after January 1, 2004, dietary supplements prescribed for human use and dispensed by an advanced registered nursing practitioner are exempt from retail sales tax under RCW 82.08.925.

Rule 244; RCW 82.08.0293: RETAIL SALES TAX EXEMPTION FOR FOOD AND FOOD INGREDIENTS - EXCEPTION FOR PREPARED FOOD - BAKERY ITEMS. Piroshkies filled with meat, cheese, and/or vegetables sold by a restaurant are not “bakery items” as defined in RCW 82.08.0293(2)(b)(ii)(C) and Rule 244 because they are sold as meals and do not fall within the ordinary plain meaning of “pastries” as sweet baked goods. Therefore, a restaurant, deli, or bakery that sells meat, cheese, and/or vegetable piroshkies must charge retail sales tax.

RETAIL SALES TAX -- EXEMPTION -- FOOD BANKS -- NONPROFIT ORGANIZATION -- PURCHASE OF MEALS TO FEED THE POOR AND INFIRM -- ETB 525. Prior to May 1, 1982, sales tax applied to the purchase of prepared meals by a nonprofit organization to feed the poor and infirm. RCW 82.08.0292, effective May 1, 1982 until June 30, 1983, and RCW 82.08.0293, effective July 1, 1983 and thereafter, exempt such purchases from sales tax.See ETB 525 as to how a nonprofit organization qualifies as a "food bank" for the sales tax exemption.

WAC 458-20-244(4)(c)(iii)(B): GOOD FAITH ESTIMATE OF SALES – PREPARED FOOD. A restaurant is entitled to make a good faith estimate of its first annual prepared food sales when it acquires a new cash register that is able to track taxable and non-taxable sales.

RCW 82.08.0293(2)(b)(ii)(C): RETAIL SALES TAX – BAKERY ITEMS. A bakery item is “sold without eating utensils” even if customers independently use saucers served with coffee as plates onto which bakery items are placed.

RULE 244, RULE 254; RCW 82.32.070:; RETAIL SALES TAX – RETAILING B&O TAX – RECORDKEEPING – FAILURE TO KEEP RECORDS. All sales of food and food ingredients at an establishment will be treated as taxable unless the seller separately accounts for sales of exempt and nonexempt food and food ingredients. Rule 244(6). The Department is authorized to estimate a grocery store owner’s retail sales tax liability where the taxpayer failed to keep or provide reliable and complete records detailing taxable and nontaxable sales.

RCW 82.08.925: RETAIL SALES TAX – EXEMPTION – DIETARY SUPPLEMENTS – PRESCRIPTION – CHIROPRACTOR. RCW 82.08.925 provides a retail sales tax exemption for “sales of dietary supplements for human use dispensed or to be dispensed to patients, pursuant to a prescription.” A chiropractor’s sales of dietary supplements to patients do not qualify for the exemption in RCW 82.08.925 because chiropractors are not authorized under Washington law to prescribe or dispense drugs.

RULE 244, RCW 82.08.0293: RETAIL SALES TAX – EXEMPTION – FOOD PRODUCTS – VENDING MACHINE ITEMS. A business selling items from vending machines needs to keep accounting records separating “food and food ingredients sold in a heated state and soft drinks” from “all other food or food ingredients.” Those two categories are taxed by separate formulas.

RCW 82.08.0293: RETAIL SALES TAX – FOOD AND FOOD INGREDIENTS – DIETARY SUPPLEMENTS – JUICE PRODUCT. A company that sells a juice product is subject to the retail sales tax for selling a “dietary supplement,” and cannot claim the exemption from the retail sales tax for selling “food” or a “food ingredient,” when its juice product contains vitamins, are labeled as “liquid dietary supplements,” are ingested in liquid form, and the packaging displays a “supplement facts” box.

RETAIL SALES TAX -- EXEMPTION -- SALES OF FOOD. Exemption of "food products" from sales tax does not apply when products are sold adjacent to an area inviting or permitting consumption of the food. Test is whether such area exists, not who provides it.

RETAIL SALES -- CATERING -- PREPARATION OF MEALS FOR OTHERS -- FOOD HANDLER'S PERMITS. The preparation of food for others is a retail sale and subject to the retailing category of the business and occupation tax and subject to the retail sales tax. Prior to June 1, 1988, the rule stated that caterers were subject to the retail sales tax; after the statutory and rule change, persons required to have a food handler's permit under RCW69.06.010 are making retail sales. RCW 69.06.010 requires every person handling unwrapped or unpackaged food to have a food and beverage worker's permit.

SALES TAX -- RESTAURANT TAKE-OUT FOOD. Food prepared in a restaurant, whether "take-out" or "eat-in," is subject to sales tax. The sales tax exemption for "combination businesses" did not apply to taxpayers' restaurant, where the food was prepared and sold at the taxpayers' restaurant. RCW 82.08.0293; WAC 458-20-244.

Certain products, although they may be " food products" in a general sense, may still not qualify for the deduction provided in the referenced statute and rule. Minerals suspended in water and sold in that condition in a bottle, are subject to the retail sales tax as provided in Rule 244.

RETAIL SALES TAX -- HOSPITALS -- MEALS FOR PATIENTS PURCHASED FROM CATERER -- PARENT COMPANY'S CHOICE OF ENTITIES. Where hospital chooses to contract with another corporation to prepare and provide meals for its patients, the caterer is engaging in a retail activity and its sales of meals to the hospital are subject to retail sales tax.

RETAIL SALES TAX -- FOOD PRODUCTS -- EXEMPTIONS -- BAKERIES -- PIZZA. The retail sales tax exemption for bakery items sold in bakeries does not extend to pizzas sold on a carry-out basis.

RETAIL SALES TAX -- USE TAX -- EXEMPTION -- FOOD PRODUCTS. Sales of food products by restaurants, drive-ins, and concession stands in places as amusement parks are subject to the retail sales tax.

RETAIL SALES TAX -- EXEMPTION -- FOOD PRODUCTS -- SALES AT MALLS -- COMBINATION BUSINESSES -- ETB 528. A business selling both taxable and nontaxable items is required to keep accounting records and sales receipts which segregate the taxable and non-taxable sales.