Is kombucha taxed as a "soft drink" under Illinois sales tax law, or as ordinary (lower-taxed) food?

Plain-English summary

A food retailer asked Illinois whether a particular kombucha product line — 25 flavors made from kombucha culture, black tea, green tea, and kiwi juice, with various non-concentrated fruit juices and flavorings added, and "0g Added Sugars" on the label — should be taxed as a "soft drink" at Illinois's 6.25% State soft-drink rate, or as ordinary food.

Illinois taxes "soft drinks" at the full 6.25% State rate regardless of where they're sold (grocery store, restaurant, or vending machine). A "soft drink" is defined by regulation as a non-alcoholic beverage that (1) contains a natural or artificial sweetener, (2) does not contain milk, soy, rice, or similar milk substitutes, and (3) does not contain more than 50% fruit or vegetable juice by volume. All three conditions must be met.

The Department noted that the requester actually asked for a Private Letter Ruling (PLR), but the Department declined to issue one — its regulations let it decline a PLR where existing regulations are already dispositive of the question — and instead answered with this non-binding General Information Letter (GIL).

On the facts described, the Department found none of the kombucha flavors contained milk products or more than 50% fruit/vegetable juice, and — critically — none of the listed ingredients (kombucha culture, teas, and non-concentrated fruit juices) appeared on the regulation's list of natural or artificial sweeteners. Fruit juice itself (as opposed to fruit juice concentrate) is not treated as a "sweetener" for this test. Because the sweetener condition wasn't met, the Department concluded the described kombucha products would not be classified as "soft drinks" — meaning they would not be subject to the 6.25% soft-drink rate.

Note: A later 2021 Illinois ruling, ST 21-0033-GIL, addresses the same kombucha/soft-drink question and explicitly states that it supersedes this letter (ST 21-0016-GIL). Anyone relying on this analysis should check ST 21-0033-GIL for the Department's current position.

What this means for you

Kombucha and beverage manufacturers

If your kombucha (or similar fermented or juice-based beverage) contains no listed natural or artificial sweetener, no milk or milk-substitute ingredients, and no more than 50% fruit or vegetable juice, this letter's reasoning suggests it may fall outside the "soft drink" definition and the 6.25% rate. But the sweetener analysis is fact-specific and ingredient-specific — a different formulation (added cane sugar, honey, agave, etc.) would very likely be taxed as a soft drink. Because this GIL was superseded by ST 21-0033-GIL, check that later letter before relying on this one.

Retailers selling kombucha or specialty beverages

Retailers charge tax based on how a product is classified, but the Department here noted it prefers to issue rulings to the manufacturer, since the manufacturer has the best knowledge of ingredients and production. If you're a retailer unsure how to tax a beverage you carry, get the classification from (or push your supplier toward) the manufacturer or the Department directly, rather than guessing.

Accountants and tax professionals

This letter is a useful illustration of the three-part "soft drink" test under 86 Ill. Adm. Code 130.310(d)(6)(B)-(C), especially the point that fruit juice (not concentrate) doesn't count as a "sweetener," and that meeting the juice-content threshold alone doesn't make a product a soft drink absent a qualifying sweetener. But treat this specific letter as superseded: cite ST 21-0033-GIL for the Department's later, controlling word on kombucha, and remember GILs are never binding on the Department regardless.

Common questions

Q: What Illinois tax rate applies to soft drinks?
A: 6.25%, the State sales tax rate for soft drinks, regardless of whether they're sold at a grocery store, restaurant, or vending machine. See 86 Ill. Adm. Code 130.310(d)(6).

Q: What makes a beverage a taxable "soft drink" in Illinois?
A: All three of: (1) it contains a natural or artificial sweetener, (2) it does not contain milk, soy, rice, or similar milk substitutes, and (3) it contains 50% or less fruit or vegetable juice by volume. If any condition fails, it's not a "soft drink" under the regulation.

Q: Does fruit juice count as a "sweetener"?
A: Fruit juice itself does not, according to this letter — only fruit juice concentrate is listed as a sweetener. That distinction was decisive here: the kombucha used non-concentrated fruit juices, so it did not meet the sweetener condition.

Q: Why did the Department issue a GIL instead of the requested Private Letter Ruling (PLR)?
A: The Department's regulations let it decline to issue a PLR when existing case law or regulations are already dispositive of the question asked. It declined the PLR request here and answered instead with this non-binding GIL.

Q: Is this letter still the Department's position on kombucha?
A: No. A later 2021 letter, ST 21-0033-GIL, addresses the same kombucha question and states that it supersedes this letter (ST 21-0016-GIL). Check that later ruling for the Department's current view.

Citations and references

Statutes and regulations:

• 35 ILCS 120/2-10 (statutory definition of "soft drinks")
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on retail sales)
• 86 Ill. Adm. Code 130.310(d)(6) (6.25% soft-drink rate; definition of "soft drinks")
• 86 Ill. Adm. Code 130.310(d)(6)(B) (three-part soft-drink test)
• 86 Ill. Adm. Code 130.310(d)(6)(C) (list of natural/artificial sweeteners)
• 86 Ill. Adm. Code 130.310(d)(6)(E)(vi) (fruit juice over 50% is not a soft drink)
• 86 Ill. Adm. Code 150.101; 150.130 (Use Tax and retailer credit)
• 2 Ill. Adm. Code 1200.110; 1200.110(a)(4); 86 Ill. Adm. Code 1200.110(a)(3)(D) (PLR request procedure and Department's discretion to decline)
• 2 Ill. Adm. Code 1200.120 (GILs are non-binding)

Related ruling: ST 21-0033-GIL (later 2021 letter on the same kombucha/soft-drink question, which states it supersedes this letter)

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/st21-0016-gil.pdf

Original ruling text

ST 21-0016 4/01/2021 RETAILERS’ OCCUPATION TAX
This letter concerns the 6.25% State rate of tax applicable to soft drinks. See 86 Ill.
Adm. Code 130.310. (This is a GIL.)
April 1, 2021
Dear Xxxx
This letter is in response to your letter dated December 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.
The Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling
request is within the discretion of the Department. The Department will respond to all
requests for private letter rulings either by issuance of a ruling or by a letter explaining
that the request for ruling will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). Further,
the Department’s regulations regarding Private Letter Rulings provide that “[i]f there is
case law or there are regulations dispositive of the subject of the request, the
Department will decline to issue a letter ruling on the subject." 86 Ill. Adm. Code
1200.110(a)(3)(D). The Department recently met and determined that it would decline to
issue a Private Letter Ruling in response to your request. We hope, however, the
following General Information Letter will be helpful in addressing your questions. In your
letter you have stated and made inquiry as follows:
COMPANY1 is a STATE based corporation and does business as a food
retailer in Illinois. We would like to request a private letter ruling as to
whether or not COMPANY2’s Kombucha meets the definition of a soft
drink for purposes of the Retailers’ Occupation Tax.
COMPANY1 is not currently under audit by the Illinois Department of
Revenue.
Per the requirements of Title 2 Part 1200 Section 1200.110(b):
1) Statement of Facts

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COMPANY2’s Kombucha is a product line currently consisting of 25
flavors. All of the ingredient lists on their packages follow the same
format: COMPANY2’s Kombucha (kombucha culture, black tea, green
tea, kiwi juice), (various non-concentrated fruit juices & flavorings), and
100% pure love!!! Organically produced.
Please see Appendix A for the exact wording of the ingredient list for each
variety in question. The Nutrition Facts panel on each package states
“Includes 0g Added Sugars”. All products list a juice content of between
2% and 5% on the label.
Illinois Administrative Code Section 130.310(d)(6)(B) defines a soft drink
as:
“On and after September 1, 2009, the term “soft drinks” means nonalcoholic beverages that contain natural or artificial sweeteners. “Soft
drinks” do not include beverages that contain milk or milk products, soy,
rice or similar milk substitutes, or greater than 50% of vegetable or fruit
juice by volume. (Section 2-10 of the Act)”
Illinois Administrative Code Section 130.310(d)(6)(C) expands on what
constitutes a natural or artificial sweetener:
“Natural and artificial sweeteners include, but are not limited to, corn
syrup, high fructose corn syrup, invert sugar, dextrose, sucrose, fructose,
lactose, saccharose, fruit juice concentrates, molasses, evaporated cane
juice, rice syrup, barley malt, honey, Rebaudioside A (Reb A), erythritol,
xylitol, aspartame, saccharin, acesulfame K, sucralose and sorbitol.
Beverages that list in the ingredient list natural and/or artificial sweeteners
including, but not limited to, those listed in this subsection (d)(6)(C), meet
the definition of “soft drinks”. (Note, for purposes of this Section, natural
and artificial sweeteners do not include natural or artificial flavors.)”
Analysis: The section of the Administrative Code defining a soft drink
consists of three qualifying conditions. In order to be considered a soft
drink under the definition, the beverage must:
a) contain natural or artificial sweeteners
b) not contain milk products or similar substitutes
c) contain 50% or less vegetable or fruit juice
None of the products listed in Appendix A contain milk products or similar
substitutes and all contain less than 50% vegetable or fruit juice. The

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March 26, 2021
question at hand is do any of the ingredients listed qualify as “natural or
artificial sweeteners” for the purposes of the definition, and if so, which
ones?
2) We submit Appendix A, a listing of ingredients for each product in
question as the only other document relevant to this request.
3) The tax period at issue is all time periods on and after the date of the
Department’s private letter ruling.
4) To the best of our knowledge, the Department has not previously ruled
on this or a similar issue for COMPANY1. We have not previously
requested and subsequently withdrawn a ruling request on this issue:
5 &6) To the best of our knowledge, no State of Illinois authority has
issued an opinion as to whether or not the products in question meet the
legal definition of a soft drink for the purpose of the Retailers’ Occupation
Tax.
7) This request contains no trade secrets.
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.
In Illinois, soft drinks are taxed at the State sales tax rate of 6.25% regardless of
the type of establishment where they are sold, e.g., a grocery store, restaurant, or
vending machine. See 86 Ill. Adm. Code 130.310(d)(6). The term “soft drinks” means
non-alcoholic beverages that contain natural or artificial sweeteners. "Soft drinks" do not
include beverages that contain milk or milk products, soy, rice or similar milk substitutes,
or greater than 50% of vegetable or fruit juice by volume. 35 ILCS 120/2-10; 86 Ill.
Adm. Code 130.310(d)(6)(B).

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Several examples of natural and artificial sweeteners are listed in Section
130.310(d)(6)(C), and beverages that list any of these sweeteners as ingredients meet
the definition of “soft drinks.” However, this list is not exhaustive. Fruit juices containing
greater than 50% fruit juice are not soft drinks, even if these beverages contain natural
or artificial sweeteners. 130.310(d)(6)(E)(vi).
Each of the 25 kombucha flavors discussed in your letter is composed of
COMPANY2’s Kombucha as a base, which consists of kombucha culture, black tea,
green tea, and kiwi juice. Other ingredients include various non-concentrated fruit
juices and flavorings, depending on the flavor. Kombucha culture often utilizes a
SCOBY, which is a “Symbiotic Culture of Bacteria and Yeast,” and the kombucha
culture included in these products appears to do the same. According to COMPANY2’s
website, a SCOBY “consumes sugar and caffeine during fermentation.” However, some
COMPANY2 Kombucha products use kiwi juice instead of sugar during fermentation.
Generally, the Department prefers to issue private letter rulings to the
manufacturer of the product at issue. The manufacturer has the most knowledge of the
ingredients and production processes regarding a specific product. However, the
Department attempts to provide sufficient information for a retailer to determine the
proper tax rate for a product.
The Department will review the label and the ingredients listed on the product to
determine the proper tax rate. According to each product’s listed ingredients provided
to the Department, the kombucha flavors identified in your letter and exhibit do not
contain any of the traditional natural or artificial sweeteners listed in Section
130.310(d)(6)(C), do not contain milk products or similar substitutes, and do not contain
greater than 50% vegetable or fruit juice. It appears kiwi juice is used during the
fermentation process to feed the yeast, and juice or fruit puree is added after
fermentation. Fruit juice, other than fruit concentrate, is not considered a natural or
artificial sweetener for the purposes of the regulation. A product containing 50% or less
fruit juice does not necessarily cause the product to be considered a soft drink for
purposes of the Act. Therefore, from the information the Department has been
provided, it appears the products would not be classified as “soft drinks.”
I hope this information is helpful. If you require additional information, please
visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Alexis K. Overstreet
Associate Counsel

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