Are single-serve condiment packets (butter pads, jelly, creamers) taxable when a restaurant buys them from a wholesaler, and does it matter how the restaurant hands them out?

Plain-English summary

A wholesaler sells food, beverages, and supplies to restaurants (both dine-in and quick-service). Its restaurant customers keep disputing whether single-serve items — individually wrapped butter pads, jelly packets, half-and-half creamers — are taxable "nonessential" food articles. The restaurants hand these out in different ways: tucked into a to-go bag, set out at a convenience bar, or placed on dine-in tables. The wholesaler asked whether these items are taxable and whether the method of handing them to the customer changes the answer.

The Department's answer: these single-serve condiments are nonessential food articles and are taxable when the restaurant buys them from the wholesaler — and how the restaurant later provides them doesn't matter.

Here's the logic:

• Food sold for home consumption is exempt, but food served by restaurants is taxable prepared food. Because the wholesaler sells to restaurants — whose own sales aren't exempt "food" — items sold to those restaurants are never eligible for the food exemption. So the only question is whether a given item is nonessential.
• Colorado taxes a restaurant's purchase of any article, bag, or container that is nonessential to the food, meal, or beverage. The Department treats something as nonessential if it's primarily for the consumer's convenience and isn't necessary to transfer the food to the customer.
• Condiments handed out separately — not incorporated into the prepared meal when it's transferred to the customer — are nonessential, regardless of how they're provided. So individually wrapped butter pads, jelly packets, and creamers are taxable when the restaurant buys them from the wholesaler. Even a jar of jelly set out for customers' convenience "appears to be" nonessential, because it isn't incorporated into the meal at transfer.
• Bulk = "essential" only by assumption. The Department had previously treated items sold in bulk to restaurants as essential, assuming they'd be incorporated into the final meal. But where the wholesaler knows the items won't be incorporated, that assumption fails and the wholesaler must collect tax on the restaurant's purchase.

What this means for you

Foodservice wholesalers

When you sell single-serve condiment packets (and similar convenience items) to a restaurant, treat them as taxable nonessential food articles and collect tax — you can't rely on the old "bulk items are essential" assumption when you know the goods won't be cooked into or become part of a meal. The buyer's downstream method of distribution doesn't relieve you; the taxable event is the restaurant's purchase from you.

Restaurant owners

Tax on these items is owed at your purchase from the wholesaler, not at the point you give them to a diner — so you can't avoid it by choosing how to set them out (in the bag, at a counter, or on the table). Items that are genuinely incorporated into the prepared meal at the time it's handed over are a different story; the line is "incorporated into the meal" vs. "set out separately for convenience."

Accountants and tax professionals

The exemption analysis is two-step: (1) wholesale sales to restaurants can't qualify as exempt "food" because the restaurant's own sales are taxable prepared food (§ 39-26-102(4.5); § 39-26-104(1)(e)); (2) nonessential articles/containers are taxed under § 39-26-707(1)(c)–(d), with "nonessential" = convenience item not necessary to transfer the food. The new wrinkle: the bulk-items-are-essential presumption (tied to the convenience-counter discussion in Reg. 39-26-707.1) is rebutted by the wholesaler's knowledge that the items won't be incorporated.

Common questions

Q: Are single-serve jelly, butter, and creamer packets taxable in Colorado?
A: Yes — to the restaurant when it buys them from a wholesaler. They're nonessential food articles because they're for the customer's convenience and aren't incorporated into the prepared meal.

Q: Does it matter whether the restaurant puts them in the to-go bag, on a counter, or on the table?
A: No. The Department says the method of providing them to the customer doesn't change the result — they're nonessential either way.

Q: What about a jar of jelly set out for customers instead of packets?
A: The Department says that "appears to be" nonessential too, because it isn't incorporated into the prepared meal when the meal is handed over.

Q: Aren't bulk purchases by restaurants exempt as essential items?
A: Generally the Department assumes bulk items get incorporated into the meal and treats them as essential. But when the wholesaler knows they won't be incorporated, the wholesaler must collect tax on the sale.

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, is not binding on the Department, and makes no determination on any specific facts. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Statutes:
- § 39-26-707(1)(e), C.R.S. (food for home consumption exemption)
- § 39-26-102(4.5), C.R.S. (definition of "food")
- § 39-26-104(1)(e), C.R.S. (tax on food/drink served by restaurants)
- § 39-26-707(1)(c) and (d), C.R.S. (tax on nonessential articles, bags, and containers)

Rules:
- 1 CCR 201-4, Department Regulation 39-26-707.1 (statement of basis and purpose; nonessential food items at convenience counters)
- Department Rule 24-35-103.5 (GIL / PLR procedure)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-15-019.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-15-019
June 8, 2015
XXXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Nonessential Food Articles
Dear XXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXXX (“Company”) a request for guidance to
determine whether certain food items are nonessential food articles or containers.
The Colorado Department of Revenue (“Department”) issues general information letters and
private letter rulings. A general information letter provides a general overview of the relevant tax
issues but is not binding on the Department. A private letter ruling provides a specific
determination for a specific set of facts, is binding on the Department but not on the taxpayer, and
requires payment of a fee. For more information about general information letters and private
letter rulings, please see Department Regulation 24-35-103.5 at www.colorado.gov/revenue/tax >
Tax Library > Rulings.
The Department treats this request as one for a general information letter. It is important to
remember that general information letters, such as this one, are general discussions of tax law and
are not binding on the Department. If a retailer would like the Department to issue a private letter
ruling on the issue raised here, the retailer can resubmit a request and fee in compliance with
Department Regulation 24-35-103.5.
Issue
1. Are the sale of individually wrapped butter pads, jelly packages, half & half creamers and
similar items exempt as food or taxable as nonessential food items?
2. Does the method by which a single serve item is provided to the end-user affect the taxability
of the item from the wholesaler to retailer?
3. Is it true food items purchased in volume are eligible for the food exemption whereas single
serve condiments are not? For example, is a jar of jelly placed on a restaurant table for
customer use exempt as food but individually sized jelly packages are taxable?
Background
Company makes wholesale sales of food, beverage, and related supply items to retail foodservice
establishments that operate both dine-in and quick-service restaurants or both. Company
represents that the taxability of nonessential food items are regularly contested by Company’s
customers (retail foodservice establishments).

At times, single serve condiments are provided by our foodservice customers to the end user in a
number of ways, including:
1. In the bag as a component of their prepared food sale to go.
2. At convenience bars for the customer’s use.
3. At the tables of their dine-in facilities.
The statement of basis and purpose published by the Department on Regulation 39-26-707.1
indicates that the taxability of nonessential food items is associated with these items being
supplied at convenience counters. However, the manner in which these items are transferred to
the customer varies by retailer. Company represents that as a wholesaler, the administrative
burden of applying sales tax based on the manner by which a retail foodservice establishment
transfers nonessentail food items would amount to an unmanageable task.
Discussion
Food sold for domestic home consumption is exempt from sales and use taxes levied by the State
of Colorado.1 However, food or drink served or furnished in or by restaurants or other similar
places of business where prepared food or drink is regularly sold is subject to sales tax.2 Because
Company is a wholesaler to restaurants and other like places of businesses, the items sold to such
entities will never be eligible for the food exemption because the food or drink these entities sell
will not meet the definition of food.3 Therefore, the only question to consider is whether certain
items, articles, or containers provided by a restaurant or other similar place of business are
nonessential.
Colorado also levies tax on purchases made by restaurants or other similar places of business for
any article, bag, or container that is nonessential to the food, meal, or beverage purchased by a
customer of the restaurant or similar place of business.4 The Department considers an article or
container to be nonessential if it is primarily used for the convenience of the consumer and is not
necessary to transfer the food, meal, or beverage to the consumer.
Condiments that are not incorporated into a prepared meal at the time it is transferred to the
consumer but that are provided separately, regardless of the method by which they are provided to
the customer of the restaurant or other similar place of business, are nonessential food articles. As
such, any purchase made by a restaurant or other similar place of business for individually
wrapped butter pads, jelly packages, half & half creamers and similar items are nonessential food
articles subject to tax when acquired from a wholesaler. In addition, when a restaurant or other
similar place of business provides jelly in a jar, rather than individually wrapped packages, for
customer’s use or convenience, such jelly appears to be a nonessential food article subject to tax
because it is not incorporated into the prepared meal at the time it is transferred to the customer.
The Department has previously provided guidance that items sold in bulk to restaurants or other
similar places of business are essential food items. The Department took and continues to take
this position because it assumes that items purchased in bulk are generally incorporated into the
final food, meal, or beverage sold to a customer. However, here, where the wholesaler is aware
that the items will not be incorporated into the food, meal, or beverage sold by the restaurant or
similar place of business, the wholesaler must collect tax on such items when the restaurant or
similar place of business makes such purchase.
Miscellaneous

1
2
3
4

2

§§ 39-26-707(1)(e) and 39-26-102(4.5), C.R.S.
§ 39-26-104(1)(e), C.R.S.
§ 39-26-102(4.5), C.R.S.
§§ 39-26-707(1)(c) and (d), C.R.S.
DR 4010A (06/11/14)

This letter represents the good faith opinion of Department personnel who are knowledgeable on
state taxes issues. However, the Department does not make a specific determination here on any
of the issues raised and the Department is not bound by this general information letter.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home-rule
counties. You may wish to consult with local governments which administer their own sales or use
taxes about the applicability of those taxes. Visit our web site at www.colorado.gov/tax for more
information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted letter
will be made public within 60 days of the date of this letter. Please let me know in writing within
that 60 day period whether you have any suggestions or concerns about this redacted letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

3

DR 4010A (06/11/14)