Does Missouri tax canned non-alcoholic beverages sold direct to consumers at the reduced 1% food sales tax rate?

Plain-English summary

The Missouri Department of Revenue ruled that a company manufacturing and retail-selling non-alcoholic beverages in ready-to-drink 12 oz aluminum cans qualifies for Missouri's reduced 1% sales tax rate on food, rather than the state's regular sales tax rate. About 75-80% of the company's beverage sales go directly to individual consumers, while about 15-20% are wholesale sales to other businesses.

Missouri taxes retail food sales at a reduced rate of 1% under Section 144.014.1, RSMo. Section 144.014.2, RSMo defines "food" for this purpose by tying it to the federal SNAP (food stamp) program under 7 U.S.C. Section 2012, with one key carve-out: food or drink sold by an establishment is not "food" (and doesn't get the reduced rate) if more than 80% of that establishment's gross receipts come from food it prepared for immediate consumption on or off its premises -- think restaurants, fast food outlets, delis, and cafes.

The Missouri Supreme Court's decision in Gate Gourmet, Inc. v. Director of Revenue (Mo. banc 2016) established that the reduced rate doesn't turn on what type of product is sold in the abstract -- it turns on the context of the sale, specifically whether the item is sold for home consumption. Because at least 80% of the Applicant's sales here are direct retail sales to consumers for home consumption (not sales by a restaurant-type establishment of food prepared for immediate consumption), the Department ruled that those sales qualify for the reduced 1% food rate.

What this means for you

Beverage manufacturers and retailers

If you manufacture or sell packaged, ready-to-drink beverages directly to consumers for them to take home and consume, this ruling supports treating those sales as taxed at Missouri's reduced 1% food rate rather than the general sales tax rate, so long as your business isn't primarily a restaurant-style establishment selling food prepared for immediate, on-site or take-out consumption of freshly prepared food.

Grocery and convenience store operators

The ruling reinforces that packaged beverages sold for customers to take home are food for reduced-rate purposes under Section 144.014.2, RSMo, the same SNAP-based test the Department applies to other packaged food and drink products sold at retail.

Accountants classifying food and beverage sales

The controlling test from Gate Gourmet is the context of the transaction (home consumption vs. immediate consumption at a restaurant-type establishment), not the abstract category of "beverage." Note that this ruling's RESPONSE addresses the Applicant's sales as a whole and is grounded in the fact that at least 80% go directly to consumers for home consumption; the ruling text does not separately break out a distinct tax treatment for the 15-20% of sales made wholesale to other businesses.

Common questions

Q: Does this mean all canned or bottled beverages get the reduced 1% rate in Missouri?
A: Not automatically. The reduced rate depends on whether the beverage is being sold for home consumption rather than by an establishment where more than 80% of gross receipts come from food prepared by that establishment for immediate consumption, per Section 144.014.2, RSMo.

Q: What if a beverage isn't SNAP-eligible?
A: Section 144.014.2, RSMo ties Missouri's definition of "food" for the reduced rate to products for which SNAP benefits could be redeemed under 7 U.S.C. Section 2012. A product that isn't SNAP-eligible would not qualify as "food" under this test.

Q: Does this ruling cover the wholesale sales to other businesses too?
A: The ruling's response addresses the Applicant's beverage sales generally and is grounded in the fact that at least 80% of sales are direct-to-consumer for home consumption. It does not separately analyze or state a distinct conclusion for the 15-20% of sales made wholesale to other businesses.

Q: Can another beverage company rely on this ruling?
A: No. Under Section 536.021.10, RSMo and 12 CSR 10-1.020, this letter ruling binds the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and law don't change. Other taxpayers cannot rely on it directly.

Citations and references

Statutes and cases:

• Section 144.014.1, RSMo (1% reduced tax rate on retail food sales, effective October 1, 1997)
• Section 144.014.2, RSMo (definition of "food" tied to SNAP eligibility; carve-out for establishments where over 80% of receipts are from food prepared for immediate consumption)
• 7 U.S.C. § 2012 (federal Food Stamp/SNAP Program definition of food)
• Gate Gourmet, Inc. v. Director of Revenue (Mo. banc 2016) (reduced food rate turns on whether sale is for home consumption, not on the abstract type of food)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8269

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated August 5, 2023.

The facts as presented in your letter ruling request and subsequent phone call are summarized as follows:

Applicant is a manufacturer and retailer of non-alcoholic beverages in ready to drink 12 oz aluminum cans to individuals. Approximately 75-80% of applicant's beverages are sold directly to consumers while approximately 15-20% of applicant's sales are sold to other businesses.

ISSUE :

Are Applicant's sales of their non-alcoholic beverages subject to the food sales tax rate under section 144.014, RSMo.?

RESPONSE :

Yes, Applicant's sales of their non-alcoholic beverages are subject to the food sales tax rate under section 144.014, RSMo.

Section 144.014.1 RSMo. provides:

Notwithstanding other provisions of law to the contrary, beginning October 1, 1997, the tax levied and imposed under this chapter on all retail sales of food shall be at one percent.

Section 144.014.2, RSMo. provides:

For the purposes of this section, the term "food" shall include only those products and types of food for which food stamps may be redeemed pursuant to the provisions of the Federal Food Stamp Program as contained in 7 U.S.C. Section 2012, as that section now reads or as it may be amended hereafter, and shall include food dispensed through vending machine For the purpose of this section, except for vending machine sales, the term "food" shall not include food or drink sold by any establishment where the gross receipts derived from the sale of food prepared by such establishment for immediate consumption on or off the premises of the establishment constitutes more than eighty percent of the total gross receipts of that establishment, regardless of whether such prepared food is consumed on the premises of that establishment, including, but not limited to, sales of food by any restaurant, fast food restaurant, delicatessen, eating house, or café.

The Missouri Supreme Court clarified in Gate Gourmet, Inc. v. Director of Revenue , (Mo. Banc 2016) that the relevant factor to determine whether or not food qualifies for the reduced rate is not solely to look at the type of food in the abstract, but to look at the context of the sales transaction that determines. Specifically, the Court focused on whether or not the items are sold for home consumption.

Here, at least 80% of Applicant's sales are directly to customers for home consumption. Therefore, these sales qualify for the reduced food rate found in section 144.014.2, RSMo.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford