Can a Louisiana restaurant buy cooking oil, shortening, or butter tax-free with a resale certificate?

Plain-English summary

Louisiana Revenue Ruling 09-002 divided a restaurant's purchases of cooking oil, shortening, and butter according to their intended role in the food being sold.

Products bought as an integral recipe ingredient or as a frying medium qualified for the resale or further-processing exclusion. The restaurant could buy them without state sales tax using a properly completed Louisiana Resale Certificate because they were intended to become a recognizable, identifiable, and beneficial part of the finished food.

Products bought merely to grease or coat pans for a nonstick purpose were taxable. In that use, the restaurant was the consumer: any oil or butter reaching the food was only incidental to the cooking process, not an intended beneficial ingredient.

Ingredient and frying uses qualified

The ruling applied a three-part further-processing test drawn from International Paper, Inc. v. Bridges:

1. The material must be a recognizable and identifiable component of the finished product.
2. The material must benefit the finished product.
3. The purpose for buying the material must be to process it into the finished product.

Oil or butter deliberately incorporated into cakes, baked goods, or other recipes met that test when it became a beneficial component of the food.

The ruling reached the same result for oil or shortening used to fry food. It relied on Al-Tom Investment, which treated the entire oil purchase as nontaxable where part of the oil remained as an essential or necessary ingredient in the fried product. RR 09-002 likewise said the portion remaining in the food was recognizable, beneficial, and important to the intended result and flavor.

Pan-coating use was taxable

The answer changed when the restaurant bought oil or butter only to coat a pan or skillet so food would not stick.

Although some material might be absorbed into the food, the ruling characterized that incorporation as incidental and unintended. Its purpose was to aid the cooking process, not to become a beneficial part of the item sold. The restaurant therefore consumed the product and owed tax on the purchase.

Resale-certificate procedure

The ruling explained that Louisiana's advance state sales-tax provisions had been repealed effective January 1, 2009. Instead of paying advance tax on qualifying resale purchases, a restaurant was to give its vendor Louisiana Resale Certificate Form R-1042.

The certificate applied only to items actually purchased for resale or further processing. Purchases not supported by a properly executed resale certificate were deemed retail sales, while a certificate could not be used for property or services the restaurant consumed rather than resold.

What this means for you

Restaurant owners

Classify the same product by why you buy it. Oil used in a recipe or as the frying medium received different treatment from oil used only as pan release.

Food-service purchasing teams

Purchase records and resale certificates should match the intended use. A broad certificate should not cover oil or butter that the restaurant buys for its own process use.

Accountants and tax professionals

The ruling's test focused on the end product and purchase purpose, not simply whether trace amounts remained in the food. Incidental absorption did not create resale treatment.

Common questions

Q: Is cooking oil used for deep frying taxable to a restaurant?

A: Under RR 09-002, no. Oil bought as the frying medium qualified when part remained as a recognizable and beneficial component of the food sold.

Q: Is butter mixed into a cake recipe taxable?

A: The ruling said oil or butter intentionally incorporated as an integral, beneficial ingredient qualified for the further-processing exclusion.

Q: What about oil sprayed or spread on a pan to prevent sticking?

A: That purchase was taxable. The restaurant used the material as a processing aid rather than buying it to become part of the food.

Q: Could the restaurant use a resale certificate for every oil purchase?

A: No. The certificate was appropriate only for qualifying resale or further-processing purchases, not products consumed by the restaurant.

Citations and references

• La. R.S. 47:306(B) — former advance sales-tax provisions, described as repealed effective January 1, 2009
• La. R.S. 47:301(10)(a)(i) — retail sale and resale
• La. R.S. 47:301(10)(c)(i) — materials for further processing into property sold at retail
• LAC 61:I.4301(C) — further-processing requirements
• International Paper, Inc. v. Bridges, 972 So. 2d 1121 (La. 2008) — three-part further-processing test
• Al-Tom Investment, Inc. v. Director of Revenue, 774 S.W.2d 131 (1989) — cooking oil remaining in fried food
• Traigle v. PPG Industries, Inc., 332 So. 2d 777 (La. 1976) — unintended residue distinction
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 09-002

Original ruling text

Revenue Ruling
No. 09-002
Sales Tax
September 17, 2009
State Sales Taxability of Cooking Oils and Shortening Purchased by Restaurants
Purpose
The purpose of this Revenue Ruling is to provide guidance concerning the sales taxability of
cooking oils and shortening purchased by restaurants. Specifically, for the purposes of including
as food ingredients, deep fat frying, and cooking vessel coating. The Ruling will discuss whether
these products purchased by restaurants are for the purposes of resale; thus exempt from the state
sales and use tax.
Issue
Whether items (i.e. butter and oil) purchased by the restaurants, for the following purposes, are
for resale, and therefore excluded from advance sales and use tax:

1. When used as an integral ingredient in the recipe of the finished prepared product (i.e.
   oils in cake recipes and baked goods).
2. When used as a cooking medium that becomes a component part of the finished
   product (i.e. frying and grilling).
3. When used to coat pans and skillets to produce a more desirable finished product.
   Legal Analysis/Discussion:
   As of January 1, 2009, the advance sales tax provisions of Louisiana Revised Statute 47:306(B)
   were repealed. Retail dealers are no longer required to pay advance state sales and use tax on
   tangible personal property purchased for resale, either in the same form as purchased or used for
   “further processing” into tangible personal property produced for sale. Dealers are now required
   to provide their vendors with a Louisiana Resale Certificate, Form R-1042, to certify the items
   being purchased are for resale and no sales tax should be charged. However, purchases for use or
   consumption are still taxable and the dealer is required to pay the sales tax, at the time of
   purchase or report the purchase on line 2 of the sales tax return to be paid with the sales tax
   return remittance.
   To qualify for and use the Louisiana Resale Certificate, Louisiana restaurants must certify that
   all materials, goods, merchandise, and services purchased from the seller are for resale as
   tangible personal property, either in the same form as purchased or for “further processing” to be
   added as a recognizable, identifiable, and beneficial component of a new product. Although
   Louisiana statute does not define “sale for resale”, R.S. 47:301(10)(a)(i) defines “retail sale”, for
   the purposes of sales and use tax, as “a sale to a consumer or to any other person for any purpose
   A Revenue Ruling is issued under the authority of LAC 61III.101(C). A Revenue Ruling is written to provide guidance
   to the public and to Department of Revenue employees. It is a written statement issued to apply principles of law to a
   specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on the public. It
   is a statement of the department's position and is binding on the department until superseded or modified by a
   subsequent change in statute, regulation, declaratory ruling, or court decision.

Revenue Ruling No. 09-002
Page 2 of 4
September 17, 2009

other than for resale as tangible personal property,…” In addition all sales of materials that are
purchased for further processing into articles of tangible personal property, for sale at retail, are
excluded from taxation. R. S.47:301(10)(c)(i) provides, the term “sale at retail” does not include
sale of materials for further processing into articles of tangible personal property for sale at retail.
The Louisiana Administrative Code 61:I.4301(C) further clarifies, “the exemption does not cover
materials which are used in any process by which tangible personal property is produced, but
only those materials which themselves are further processed into tangible personal property.
Whether materials are further processed or simply used in the processing activity will depend
entirely upon an analysis of the end product. The following “three-pronged test” was developed,
to determine the taxability of those materials purchased for further processing: International
Paper, Inc. v. Bridges, 972 So. 2d 1121 (La 2008) 1
1.

The material must be a recognizable and identifiable component part of
the end product;

2.

The material must be of benefit to the end product; and

3.

The purpose for the purchase of the material must be to process it into the
end product.

Oils and butter purchased and used as an integral ingredient or as a cooking medium (i.e. frying)
The test for determining whether a material is subject to the exclusion and applicable for the
resale certificate, is whether the material was purchased for the purpose of “ further processing
into” the finished product, such that the material or any of its elements become a “recognizable,
integral part” of the finished product. Primarily, what was the intended purpose of the oil or
butter purchased?
Integral is defined as “of, relating to, or serving to form the whole: essential to completeness:
organically joined or linked.”2 Oil or butter “further processed” into the recipe of cakes, other
baked goods, or other products are subject to this exemption, provided it’s a recognizable and
identifiable component part of the finished product, a benefit to the end product, and purchased
for the purpose of processing it into the end product. Pursuant to R.S. 47:301(10)(a)(i), as an
integral ingredient, the oil and butter purchased for the necessary further processing of cakes,
baked goods, or other finished products, purposely becomes incorporated into and serves as a
beneficial component or ingredient of the finished product, and is therefore exempt for the state
sales tax.
This exemption also applies to oil or butter purchased for use as a cooking medium or to fry
foods. Al-Tom Investment Inc. v. Director of Revenue, where the Court held that cooking oil
used by Kentucky Fried Chicken franchises became an ingredient of the fried chicken because a
portion of the oil remained as an essential or necessary part of the finished product, thus making
the entire purchase exempt. Just as flour, salt or spices become a part of the food item during
1

International Paper, Inc. v. Bridges, 972 So. 2d 1121 (La 2008) Sales and use taxes did not apply to a paper
manufacturing company's purchases of sodium chlorate, hydrogen peroxide, and elemental oxygen for use in
manufacturing white paper products. Those chemicals qualified for the tax exclusion under La. Rev. Stat. Ann. §
47:301(10)(c)(i) for materials bought for the further processing of items for resale, also referred to as the
reprocessing exclusion. The “three-pronged” test for determining the application of the reprocessing exclusion was
met.
2
Webster’s Third New International Dictionary, (2002)

Revenue Ruling No. 09-002
Page 3 of 4
September 17, 2009

preparation; the cooking oil and shortening become a part of the food during the cooking portion
of the preparation. The Court concluded the cooking oil and shortening were ingredients of the
food products sold, and thus such purchases were made at wholesale and nontaxable.3
Further, rulings of other states such as Alabama, Georgia, and Texas, were found to be
compatible with the issue involved.4 While the cooking oil is primarily used to fry the food, the
portion used and that which remains in the product becomes a recognizable and identifiable
component, beneficial to its desired result and flavor distinction. The states reasoned that if any
part of a material is intended to and does remain as an essential or necessary element of the
finished product then the entire purchase is exempt.
Oil and butter used as a cooking medium or to coat pans and skillets (i.e. frying and grilling)

The resale certificate is authorized for use in making tax-free purchases of only items for resale,
for which R.S. 47:301(10)(a)(i) interprets as materials purchased for further processing into
articles of tangible personal property deemed as purchases for resale and exempt for state sales
tax. LAC 61:I.4301 further clarifies, although any particular material may be fully used,
consumed, absorbed, dissipated or otherwise completely disappear during processing, if it does
not become a recognizable and identifiable component which is of some benefit to the end
product, it is not exempt under the provision. The fact that a material remained as a recognizable
component of an end product by accident because the cost of removal from the end product was
prohibitive or for any other reason, if it does not benefit the property by its presence, it was not
material for further processing and the sale is not exempt under this provision.
When oil and butter are purchased for use as a cooking medium to coat pans or similar cooking
items, the restaurant becomes the end consumer. Oil or butter purchased, is considered sold at
retail when purchased by the restaurant to coat pans for a non-stick purpose, not incorporate it
into the product. Although the cooking oil is absorbed into the product, it is merely an aid to the
processing.
As a cooking medium for the purposes of coating a pan, the oil or butter becomes incidentally
incorporated within the final product. Its inclusion results from an unintended (unavoidable)
inefficiency of the cooking process. The court in Al-Tom Investment, further found where the
inclusion of the waste residue of the substance results from an unintended (although
unavoidable) inefficiency of the manufacturing process, it is of no benefit to the product sold,
and is of the nature of an impurity rather than of an integral part of the finished product.5 Its
purpose is that as stated above, for use as a cooking medium to coat a pan, and not for the
purpose of resale or for use as an integral part of the finished product. Therefore, oil or butter
purchased for this purpose is still taxable and the restaurants are required to pay the sales tax, at
the time of purchase or report the purchase on line 2 of the sales tax return to be paid with the
sales tax return remittance.

3

Al-Tom Investment, Inc., d/b/a Kentucky Fried Chicken v. Director of Revenue, 774 SW2d 131 (1989). Entire
cooking oil bought by three restaurants and used in preparing fried foods was entitled to full exemption for
ingredients used in producing products for sale. Director of Revenue’s policy of considering only 50% of the oil as
absorbed into the prepared foods and so allowing only 50% exemption was rejected.
4
-Tom Investment, Inc., d/b/a Kentucky Fried Chicken v. Director of Revenue, 774 SW2d 131 (1989); State v.
Southern Kraft Corporation, 8 So.2d 886 (1942); Bullock v. Lone Star Industries, Inc., 584 S.W. 2d 386 (Tex. Civ.
App. 1979)
5
Traigle v. PPG Industries, Inc., 332 So. 2d 777 (La 1976)

Revenue Ruling No. 09-002
Page 4 of 4
September 17, 2009

Conclusion
Restaurants are no longer required to pay advance state sales and use tax on tangible personal
property purchased for “further processing” into tangible personal property produced for sale.
Instead, they are to use the Louisiana Resale Certificate, providing the certificate to the seller to
certify the purchase of such items as oil and butter are for resale, and therefore not charged the
state sales tax.
All sales that are not supported by resale certificates properly executed shall be deemed retail
sales, and the dealer will be held liable for the tax. Certificates of resale may not be used to
obtain tangible personal property or taxable services that would be used by the purchaser, not
resold.
Pursuant to the rules and regulations, as mentioned above, oil and butter purchased as an integral
ingredient or as a cooking medium to fry food is exempt for the state sale and use tax. However,
oil and butter purchased as a cooking medium to coat a pan does not qualify as an item
purchased for resale or for the “further processing” of a finished product and therefore is not
subject to the exempt or applicable for the Louisiana Resale Certificate.
Cynthia Bridges
Secretary
By:

Leticia Jackson-Mabry, Attorney
Policy Services Division