Does a grocery store charge the high or low Illinois sales tax rate on individually sold rolls and cookies, and on prepackaged cold prepared food, when the store also has a separate dining area?

Plain-English summary

The Illinois Department of Revenue ruled on a grocery chain's request to reconfirm the tax rate it charges on two categories of food: individually sold rolls and cookies from its in-store bakery, and prepackaged cold prepared foods (excluding sandwiches and salad bar items) sold by weight or by each. The Department confirmed that the low sales tax rate applies to both categories, as long as the customer isn't buying them to eat on the premises.

Illinois taxes food at a "high" general merchandise rate (6.25%) or a "low" preferential rate (1%, plus applicable local taxes), depending on two factors: (1) whether the retailer provides an area for on-premises dining, and (2) the nature of the food item itself. If a store offers a dining area, the law presumes all food sold there -- even bulk groceries -- is taxed at the high rate. A retailer can rebut that presumption by showing (a) the dining area is physically separated or otherwise distinguishable from the rest of the store, and (b) the store has a way to separately record and account for high- and low-rate sales.

The chain's twenty-seven Illinois stores each have a dining area (a curving bar-table divider, a walled-off nook, or a separated seating area) that is physically distinct from the grocery floor, with checkout lanes further separating the two. Registers are preprogrammed with a tax rate for every item, and staff can flip an item to the high rate at checkout if the customer says it's for on-premises consumption. Because both rebuttal conditions were met, the presumption of high-rate taxation was rebutted, and the store may charge the low rate on rolls, cookies, and cold prepared food sold for take-home consumption -- reserving the high rate for items actually eaten in the dining area, plus hot foods, made-to-order sandwiches, self-serve salad bar items, candy, alcohol, and general merchandise, all of which are taxed at the high rate regardless of where they're eaten.

What this means for you

Grocery and convenience store owners

If your store has any area where customers can sit and eat, Illinois presumes every food sale is taxed at the high rate -- not just the items eaten there. You can rebut that presumption only by (1) physically separating or otherwise distinguishing the dining area from the rest of the store, and (2) programming your registers (or another method) to separately record high-rate and low-rate sales. If you meet both conditions, you can charge the low rate on take-home groceries, bakery items, and prepackaged cold prepared food, and reserve the high rate for items a customer says they'll eat on-site.

Bakery and prepared-foods department managers

Individually sold rolls, cookies, doughnuts, and bagels stay at the low rate no matter how few or many a customer buys, as long as they aren't for on-premises consumption -- quantity alone doesn't push bakery items to the high rate. The same goes for prepackaged cold prepared food sold by weight or individually. But hot foods, made-to-order sandwiches, and self-serve hot or cold salad bar items are always taxed at the high rate as "food prepared for immediate consumption," regardless of whether the customer eats them in the store or takes them home.

Accountants and tax professionals

This ruling turns on the two-factor, rebuttable-presumption framework in 86 Ill. Adm. Code 130.310(b) and (d): a dining area triggers a presumption of high-rate tax on all food sales, rebuttable only through physical separation of the dining area and a recordkeeping system that tracks high- vs. low-rate sales item by item. The Department also confirmed that a decade-old PLR (ST 11-0008-PLR) on the same taxpayer's store layout remained persuasive on the "physically separated" prong even after store layouts changed, since the areas "appear sufficiently distinguishable." Note that PLRs expire after 10 years under 2 Ill. Adm. Code 1200.110(e) -- which is exactly why the taxpayer requested this renewal.

Common questions

Q: Does buying a lot of rolls or cookies at once push them into the high tax rate?
A: No. Under 86 Ill. Adm. Code 130.310(c)(2)(B) and (d)(4)(A), bakery items like doughnuts, cookies, bagels, and rolls are taxed at the low rate "regardless of quantity," as long as they're for consumption off the premises where sold.

Q: My grocery store has a small seating area -- does that mean everything I sell is taxed at the high rate?
A: Not necessarily. Having any on-premises dining area creates a rebuttable presumption that all food sold in the store is high-rate. You can overcome that presumption by physically separating (or otherwise distinguishing) the dining area from the rest of the store and by using a recordkeeping system -- such as tax-flagged registers -- that separately accounts for high- and low-rate sales.

Q: Are sandwiches and salad bar items ever taxed at the low rate?
A: Not in this ruling. Made-to-order sandwiches and both hot and cold self-serve salad bar items are treated as "food prepared for immediate consumption" and are always taxed at the high rate, regardless of where the customer eats them.

Q: Can this ruling be relied on by another grocery chain?
A: No. A Private Letter Ruling binds the Department only as to the specific taxpayer who requested it (and here, an affiliated entity named in the same request), and only to the extent the facts given were correct and complete. Another retailer with a similar layout would need to request its own ruling.

Q: How does the store decide which rate to charge at checkout?
A: The ruling notes the store must ask the customer, at the time of sale, whether the item is for consumption in the dining area. If so, the high rate applies; if the customer says it's for off-premises consumption, the low rate applies.

Citations and references

Statutes and rules:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax); 86 Ill. Adm. Code 150.101, 150.130 (Use Tax and ROT credit)
• 86 Ill. Adm. Code 130.310 (Food, Soft Drinks and Candy -- the high/low tax rate framework)
• 86 Ill. Adm. Code 130.310(b), (c)(2), (c)(2)(B), (c)(2)(C), (d)(1), (d)(4)(A) (two-factor test, definitions, rebuttal conditions, and examples)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures and 10-year expiration); 2 Ill. Adm. Code 1200.120 (General Information Letters)
• ST 11-0008-PLR (prior related Private Letter Ruling to the same taxpayer, 2011)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2021.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2021/st21-0001-plr-.pdf

Original ruling text

ST 21-0001 03/11/2021 FOOD
Food items for immediate consumption are subject to the higher tax rate. See 86
Ill. Adm. Code 130.310. (This is a PLR.)
March 23, 2021
Dear NAME:
This letter is in response to your letter dated November 16, 2020, in which you requested
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”)
are issued by the Department in response to specific taxpayer inquiries concerning the
application of a tax statute or rule to a particular fact situation. A PLR is binding on the
Department, but only as to the taxpayer who is the subject of the request for ruling and only to
the extent the facts recited in the PLR are correct and complete. Persons seeking PLRs must
comply with the procedures for PLRs found in the Department’s regulations at 2 Ill. Adm. Code
1200.110. The purpose of a General Information Letter (“GIL”) is to direct taxpayers to
Department regulations or other sources of information regarding the topic about which they
have inquired. A GIL is not a statement of Department policy and is not binding on the
Department.
See 2 Ill. Adm. Code 1200.120.
You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant
to your inquiry.
Review of your request disclosed that all the information described in paragraphs 1
through 8 of Section 1200.110 appears to be contained in your request. This Private Letter
Ruling will bind the Department only with respect to COMPANY1, for the issue or issues
presented in this ruling, and is subject to the provisions of subsection (e) of Section 1200.110
governing expiration of Private Letter Rulings. Issuance of this ruling is conditioned upon the
understanding that neither COMPANY1, nor a related taxpayer is currently under audit or
involved in litigation concerning the issues that are the subject of this ruling request. In your
letter you have stated and made inquiry as follows:
Re: Sales Tax Ruling Request for COMPANY1.
To Whom It May Concern:
I am writing on behalf of the above referenced entity to request a
taxability ruling pertaining to the appropriate use of the high rate of tax
versus the low rate of tax for sales of certain cold prepared food items and
sales of individual servings of rolls and cookies.
COMPANY1 ("COMPANY1") previously received a taxability ruling
regarding individual servings of rolls and cookies in 2011 (ST-11-0008PLR) and they have relied on the guidance in the PLR to determine the
correct rate of tax to charge their customers on these items. COMPANY1
believes that any changes to the taxability of these items would create
frustration for their customers. A copy of the PLR is attached for ease of
reference. During a recently completed audit by the Illinois Department of

COMPANY
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March 23, 2021
Revenue, the auditor started to question the taxability of these type items,
giving the impression the auditor ' s position would be contrary to the
guidance issued in the PLR. Such questions ceased once the auditor was
provided a copy of the PLR and such items were not a part of the audit
workpapers. As Regulation 1200.110e states that private letters rulings are
revoked 10 years after their date of issuance, we would like to request a
new letter ruling on these same issues.
Facts:
COMPANY1 sells groceries, hot and cold prepared foods, and general
merchandise at retail through twenty-seven store fronts throughout Illinois.
All the stores sell grocery items for off premise consumption as well as
prepared foods and bakery items that are ready for immediate consumption.
The tax flag for each item purchased in any store is preprogrammed and
consistently applied to all stores located in the State of Illinois. The team
member operating a particular register in any particular store in Illinois has
the ability to change the low rate of tax designation to the high rate of tax
designation on certain items purchased if for immediate on-premise
consumption. The areas designated for on-premise consumption can vary
from store to store. Some stores continue to have the same area layout as
described in the prior ruling request:
The area designated for on-premise consumption is typically in the left front
comer of the store as the customer enters. Several long, high curving bar
tables form a divider that separates the dining area from the rest of the store.
These high bar tables also serve as an enclosure that surrounds a number of
smaller tables and chairs within the dining area.
As the customer moves past the dining area into the rest of the store, he first
passes a series of checkout lanes situated across the middle of the store which
further separates the dining area from the area where food is stocked for sale.
Other stores have the exact same layout as described above, except on the right
front comer of the store as the customer enters.
Other stores have indoor and/or outdoor seating available at the middle front
of the store. Such indoor seating is typically separated by a low wall
immediately following a series of checkout lanes situated across the middle of
the store, which further separates the dining area from the area where food is
stocked for sale.
In all cases, no food is stocked for sale in, or near, these front areas.

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March 23, 2021
Each store has several different sections which can include a bakery section, a
juice bar, a pizza bar, a sandwich bar, a stir fry bar, a self-serve salad bar, a
self-serve hot soup bar, and areas where pre-packaged hot and cold prepared
food can be picked up. The juice bar, pizza bar, sandwich bar, stir fry bar
usually have store personnel available who assist customers.
Within their prepared foods department, they sell a variety of prepackaged
cold prepared food products that are sold either by weight or by each. Such
products are sold in various sized packages. Daily, the products are either
made in house and packaged for sale, or the products are received from a third
party in bulk and subsequently packaged for sale by the store. Although the
cold prepared food products are ready for immediate consumption, most of
the cold prepared food products are not typically eaten on the premises of the
retailer.
Within their bakery departments, they sell fresh baked rolls and cookies that
are sold by the piece as individual servings. The rolls and cookies are baked in
the store daily. They do not maintain the temperature of the rolls and cookies
after they are baked. The rolls and cookies are placed out in self-service bins
for the customers. Customers are free to purchase as many, or as few, of these
items as they wish. Although the bakery products are ready for immediate
consumption, most of the bakery products are not typically eaten on the
premises of the retailer. Generally, there are no separate cash registers in these
sections but while the layout is generally consistent throughout the various
stores, there may be slight differences in a particular store (i.e., a cash register
may be situated in the stir fry bar in one store but not in any other store). That
being said, a large portion of food sold in the grocery stores is paid for at the
regular grocery store check-out counters.
Current Treatment:
Based upon the guidance in the previous letter ruling issued to COMPANY1
the stores are charging the high rate of tax on food prepared for immediate onpremise consumption, candy, alcohol and general merchandise. In the case of
baked goods, such as rolls or cookies that can be bought in any quantity,
including a single item, the store is charging the low rate of tax on these
items.
The store is charging the low rate of tax on cold prepared food purchases
other than sandwiches and salad bar transactions.
Applicable Regulations and Letter Rulings:

COMPANY
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March 23, 2021
86 Ill. Adm. Code 130.31O(b) states "The manner in which food is taxed
depends upon 2 distinct factors that must both be considered in determining if
food is taxed at the high rate as "food prepared for immediate consumption" or
the low rate as "food prepared for consumption off the premises where sold:
1)

2)

The first factor is whether the retailer selling the food provides
premises for consumption of food. If so, a rebuttable presumption is
created that all sales of food by that retailer are considered to be
prepared for immediate consumption and subject to tax at the high rate.
As a result of this presumption, even bulk food could potentially be
taxable at the high rate. However, this presumption is rebutted if a
retailer demonstrates that:
A)

the area for on-premises consumption is physically separated or
otherwise distinguishable from the area where food not for
immediate consumption is sold; and

B)

the retailer has a separate means of recording and accounting
for collection of receipts from sales of both high and low rate
foods. For purposes of this subsection (b)(l)(B), the phrase
"separate means of recording and accounting for collection of
receipts" includes cash registers that separately identify high
rate and low rate sales, separate cash registers, and any other
methods by which the tax on high and low rate sales are
recorded at the time of collection; and

The second factor is the nature of the food item being sold. As provided
in subsection (c), some foods, such as hot foods, are always considered
to be "food prepared for immediate consumption", and thus subject to
the high rate of tax.

86 Ill. Adm. Code 130.310(c)(2) states "…Food prepared for immediate
consumption means food that is prepared or made ready by a retailer to be
eaten without substantial delay after the final stage of preparation by the
retailer. Food prepared for immediate consumption includes, but is not
limited to, the following... (A)(v) all food sold for consumption on the
premises where sold.
86 Ill. Adm. Code 130.310(c)(2)(B) states " Food prepared for immediate
consumption" does not include: (i) doughnuts, cookies, bagels or other bakery
items prepared by a retailer and sold either individually or in another quantity
selected by the customer, provided they are for consumption off the premises
where sold... "

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March 23, 2021
86 Ill. Adm. Code 130.310(c)(2)(C) states"... the items listed in subsection
(c)(2)(B) are taxable at the low rate only if the retailer had a separate means of
recording and accounting for high and low rate sales, and the retailer provides
no on-premises facilities for consumption of the food or, if the retailer does
provide such facilities, they are physically separated or otherwise
distinguishable from the area where food not for immediate consumption is
sold."
86 Ill. Adm. Code 130.310(d)(l) states "If retailers provide seating or facilities
for on­ premises consumption of food , all food sales are presumed to be
taxable at the high rate as "food prepared for immediate consumption".
However, this presumption can be rebutted by evidence that: A) the area for
on-premises consumption is physically separated or otherwise distinguishable
from the area where food not for immediate consumption is sold; and B) the
retailer utilizes a means of recording and accounting for collection of receipts
from the sales of food prepared for immediate consumption (high rate) and
the sales of food that are not prepared for immediate consumption (low rate).
86 Ill. Adm. Code 130.310(d)(4)(A) gives the following example “… Provided
that the requirements of subsection (d)(l) are met … Low rate items would
include, but are not limited to, doughnuts (regardless of quantity), bagels, rolls
and whole breads or bakery items prepared by the retailer … “
In Private Letter Ruling No. ST 11-0008-PLR, the state determined that
COMPANY1 had:
1)

sufficiently distinguishable areas designated for on-premise
consumption of food from the rest of the store to meet the
requirements of 86 lll. Adm. Code 130.310(d)(l)(A) and

2)

the requirements of 86 Ill. Adm. Code 130.3IO(d)(l)(B) had also been
met since the registers at the store can account for both low and high
rate items, each item sold in the store is "tax flagged" with a specific
tax rate and store personnel inquire whether individually baked good
items are for consumption on the premises.

The method of accounting bas not significantly changed since the issuance of
ST-11-008- PLR in 2011. While the layout of the stores used by COMPANY1
has changed since the issuance of ST-11-008-PLR in 2011, primarily as it
relates to where such areas designated for on-premise consumption are located
within the store, such areas appear sufficiently distinguishable.
Ruling Request:

COMPANY
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March 23, 2021
COMPANY1 is not currently under audit by the Illinois Department of
Revenue.
Please confirm that the low rate of tax should be charged on all sales of
individual servings of rolls or cookies and cold prepared food (other than
sandwiches and salad bar purchases) sold by COMPANY1 in its Illinois
grocery stores for off premise consumption.
An affiliated company (COMPANY2) has one store in Illinois that is set up
the same way and we would also like any ruling issued by the Illinois
Department of Revenue to apply to that entity as well. COMPANY2 is also
not currently under audit by the Illinois Department of Revenue.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property at retail to purchasers for use or consumption.
See 86 Ill. Adm. Code 130.101. Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill.
Adm. Code 150.101. These taxes comprise what is commonly known as “sales tax” in Illinois.
If the purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time
of purchase. The retailers are then allowed to reduce the amount of Use Tax they must remit by
the amount of Retailers' Occupation Tax liability which they are required to and do pay to the
Department with respect to the same sales. See 86 Ill. Adm. Code 150.130.
The Department’s regulation governing food is found at Section 130.310 (“Food, Soft
Drinks and Candy”). Food can be taxed at either the State general merchandise, or “high” rate
(6.25%), or a preferential low rate of 1% (plus any applicable local taxes). As Section 130.310
explains, the applicable tax rate depends upon several factors.
The manner in which food is taxed depends upon two distinct factors that must both be
considered in determining if food is prepared for immediate consumption or if food is prepared
for consumption off the premises where sold:

1. The first factor is whether the retailer selling the food provides premises for
   consumption of food.
2. The second factor is the nature of the food item being sold.
   86 Ill. Adm. Code 130.310(b).
   As to the first factor, if retailers provide facilities for the on-premises consumption of
   food, a presumption is created that all sales of food are taxable at the higher rate. However, this
   presumption can be rebutted if the following two criteria are demonstrated:

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1. The area for on-premises consumption is physically separated or otherwise
   distinguishable from the area where food not for immediate consumption is sold; and
2. The retailer utilizes a means of recording and accounting for collection of receipts
   from the sales of food prepared for immediate consumption (high rate) and the sales
   of food that are not prepared for immediate consumption (low rate).
   86 Ill. Adm. Code 130.310(b) and (d).
   As to the second factor, the nature of the food item being sold, certain items are always
   taxable at the high rate, such as candy, soft drinks and “food prepared for immediate
   consumption.” The latter term is explained in greater detail at subsection (c)(2)(A)(i) through
   (iv) of the regulation. Many of the items sold by COMPANY1, Inc. clearly constitute “food
   prepared for immediate consumption.” Examples include, but are not limited to, all hot foods,
   sandwiches prepared to the individual order of a customer, and salad bars where a customer can
   prepare his or her own salad (both hot and cold). Food that is not considered “food prepared for
   immediate consumption” is explained in greater detail at subsection (c)(2)(B)(i) through (iv) of
   the regulation. Examples include, but are not limited to, doughnuts, cookies, bagels or other
   bakery items prepared by a retailer and sold either individually or in another quantity selected by
   the customer, provided they are for consumption off the premises where sold, and cold salads,
   jellos, stuffed vegetables or fruits sold by weight or by quart, pint or other quantity by a retailer.
   It is our opinion, after reviewing the information in your letter and the additional
   materials you submitted, that the store should charge the high rate of tax only on food prepared
   for immediate consumption (as explained in the regulation), candy, alcohol and general
   merchandise. In the case of baked goods, such as rolls or cookies that can be bought in any
   quantity, including a single item, the store should only charge high rate on these items if they are
   sold for consumption on the premises. Similarly, with regard to cold prepared food products that
   are prepackaged and sold either by weight or individually in various sized packages, the store
   should only charge high rate on these items if they are sold for consumption on the premises. As
   a practical matter, the store will need to make this determination at the time of sale by asking the
   customer if he or she plans on eating these items in the dining area. If the store determines that
   these items will not be consumed in the on-premises facilities, the low rate of tax would apply.
   The Department finds that the two criteria are met to rebut the presumption that all food
   sold in an establishment that provides an area for on-premises consumption of food are taxed at
   the high rate. First, the area designated for on-premises consumption of food is sufficiently
   distinguishable from the rest of the store. It generally occupies the left front corner of the store
   as you enter; although, in some stores it may be located in the right front corner. No food is
   stocked for sale in, or near, this front area. Several long, high curving bar tables form a divider
   that separates the dining area from the rest of the store. These high bar tables also serve as an
   enclosure that surrounds a number of smaller tables and chairs within the dining area. As one
   moves past the dining area into the rest of the store, he or she first passes a series of checkout
   lanes situated across the middle of the store. These checkout lanes further separate the dining
   area from the area where food is stocked for sale.

COMPANY
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Second, the information you have submitted also indicates that the requirements of the
second factor have been met because the registers at the store can record and account for both
low and high rate items. Each item sold in the store has a “tax flag” preprogrammed with a
specific tax rate that is applied consistently to all stores located in Illinois. Each employee
operating a register has the ability to change the low rate of tax designation to the high rate of tax
designation on certain items purchased if for immediate on-premises consumption. The stores
therefore utilizes a means of recording and accounting for collection of receipts from high rate
and low rate sales and so meet the requirements of the second criteria. If the baked good or cold
prepared food is for consumption on the premises, it should be taxed at the high rate; otherwise,
it should be taxed at the lower rate. This will require the store to make inquiry of the customer at
the time of sale.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete.
This Private Letter Ruling is revoked and will cease to bind the Department 10 years after the
date of this letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a
pertinent change in statutory law, case law, rules or in the factual representations recited in this
ruling.
I hope this information is helpful. If you have further questions concerning this Private
Letter Ruling, you may contact me at (217) 782-2844. If you have further questions related to the
Illinois sales tax laws, please visit our website at www.tax.illinois.gov or contact the
Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,
Richard S. Wolters
Chairman, Private Letter Ruling Committee