NY TSB-A-24(29)S Sales Tax 2024-08-14

Is a powdered coffee-based beverage mix, sold unheated in grocery stores and online to be mixed with water at home, subject to New York sales tax?

Short answer: Generally no. A coffee-based beverage mix sold unheated for off-premises consumption — in grocery stores or online — is exempt food and beverage under Tax Law § 1115(a)(1); it is not a soda, fountain drink, low-juice fruit drink, or alcohol. But the same product becomes taxable if a restaurant, tavern, or vending machine sells it, unless it is sold unheated for off-premises use in the same form and packaging a food store uses.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A company planned to sell a powdered, coffee-based beverage mix — its main ingredient is coffee-bean caffeine, plus natural flavors and a sugar substitute. It is sold unheated, meant to be mixed with water at home, and marketed as an alternative to ordinary coffee, through grocery stores and online for off-premises consumption. The stub headline guessed "subject to sales tax," but the Department concluded the opposite: as sold, the product is exempt from New York State and local sales tax.

New York generally exempts food and beverages from sales tax (Tax Law § 1115(a)(1)). The exemption carves out a few things that stay taxable — sodas and fountain-type drinks (other than coffee, tea, and cocoa), fruit drinks with less than 70% natural juice, and alcoholic beverages. This product is a coffee beverage; it is none of those. A "beverage" includes a drink "in liquid form or otherwise," so a powdered mix counts (20 NYCRR 528.2(b)(2)). So sold unheated through grocery stores and online for consumption off the premises, it is exempt.

The Department added the standard caveat that matters for anyone who sells food: the seller's setting can change the answer. Under Tax Law § 1105(d), food and drink sold by a restaurant, tavern, or similar establishment, or through a vending machine, is taxable — unless it's sold unheated, for off-premises consumption, in the same form, condition, quantity, and packaging a food store would use. The product itself is exempt; sell it across a deli counter hot or by the cup and it can become taxable.

What this means for you

Food and beverage manufacturers / grocery sellers

If you sell a packaged, unheated coffee or tea mix through grocery and online channels for people to make at home, you generally don't charge New York sales tax on it. Powdered form doesn't defeat the exemption — a "beverage" includes drinks sold in powder or concentrate. Watch the taxable carve-outs: if your drink is a soda, a fruit drink under 70% juice, or contains alcohol, the exemption doesn't apply.

Restaurants, cafés, and vending operators

The same product can be taxable in your hands. If you sell it prepared (e.g., brewed by the cup), heated, or for on-premises consumption, Tax Law § 1105(d) makes it taxable. You only stay within the exemption if you sell the sealed package unheated for off-premises use, exactly as a food store would — same form, packaging, and quantities.

Accountants and tax professionals

The analysis runs through § 1115(a)(1) (the food/beverage exemption and its carve-outs), § 528.2(b)(2) (beverage includes non-liquid forms), § 1115(d) (off-premises unheated sales), and § 1105(d)/§ 527.8(a)(3) (the restaurant/vending overlay). The Department cited TSB-A-08(16)S, and pointed to Tax Bulletins ST-65 and ST-525 for the taxable-vs-exempt food and beverage lists. The key teaching point: classification depends on both what the product is and who sells it and how.

Common questions

Q: Is a powdered drink mix really a "beverage"?
A: Yes. New York's rule defines a beverage as a drink "whether sold in liquid form or otherwise" (20 NYCRR 528.2(b)(2)), so a powder or concentrate to be reconstituted at home counts.

Q: When would this coffee mix be taxable?
A: When a restaurant, tavern, similar establishment, or vending machine sells it — for example brewed and served, heated, or for on-premises consumption. It stays exempt only if sold unheated for off-premises use in the same form and packaging a grocery store uses (Tax Law § 1105(d); § 1115(d)).

Q: Are all drinks exempt as food?
A: No. Sodas and fountain drinks (other than coffee, tea, cocoa), fruit drinks with under 70% natural juice, and alcoholic beverages remain taxable even when sold by a food store (Tax Law § 1115(a)(1)).

Q: Can I rely on this opinion?
A: No. An Advisory Opinion binds the Department only as to the petitioner and the exact facts it described. It illustrates the Department's reasoning but cannot be relied on by another taxpayer.

Citations and references

Statutes and regulations:
- Tax Law § 1105(a) (sales tax on retail sales of tangible personal property)
- Tax Law § 1115(a)(1) (food/beverage exemption and its carve-outs for sodas, low-juice fruit drinks, alcohol)
- Tax Law § 1115(d) (unheated food sold for off-premises consumption like a food store is exempt)
- Tax Law § 1105(d) (food and drink sold by restaurants, similar establishments, or vending machines)
- 20 NYCRR 528.2(b)(2) (a beverage is a drink, in liquid form or otherwise)
- 20 NYCRR 527.8(a)(3) (beverages sold by restaurants, food stores, and similar establishments)

Department guidance referenced: TSB-A-08(16)S; Tax Bulletin ST-65 (Beverages Sold by Food Stores, Beverage Centers and Similar Establishments); Tax Bulletin ST-525 (Listings of Taxable and Exempt Foods and Beverages).

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-29s.htm
Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-29s.pdf

Original ruling text

Sales Tax
August 14, 2024
Office of Counsel

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ redacted ] (Petitioner). Petitioner asks whether its coffee-based beverage mix is subject to New York State sales tax.

We conclude that Petitioner’s product is a flavored coffee beverage that is exempt from New York State and local sales tax.

Facts

Petitioner plans to sell a coffee-based beverage mix. The main ingredient in Petitioner’s product is coffee bean caffeine. The product also contains other ingredients such as natural flavors and a sugar substitute. It is to be sold unheated and is meant to be mixed with water before consumption. The product will be marketed as an alternative to normal coffee. The product will be sold online and in grocery stores, to be consumed off-premises.

Analysis

Tax Law § 1105(a) imposes tax on retail sales of tangible personal property, unless an exemption applies. Food and beverages are generally exempt from tax. However, this exemption does not include fruit drinks that contain less than 70% natural fruit juice, soft drinks, sodas and beverages that are ordinarily dispensed at soda fountains (other than coffee, tea and cocoa) and beer, wine or other alcoholic beverages. Tax Law § 1115(a)(1). A beverage is a drink, whether sold in liquid form or otherwise. 20 NYCRR 528.2(b)(2). Petitioner’s product is a beverage sold for human consumption, and is not a soda or fountain drink, a fruit drink with less than 70% natural juice, or an alcoholic beverage. Therefore, it is exempt from sales tax under Tax Law § 1105(a). See TSB-A-08(16)S.

Sales tax is also imposed on the receipts from sales, other than sales for resale of beverages of any type sold by restaurants, taverns or other establishments or through vending machines, unless sold for off-premises consumption in an unheated state, “in the same form and condition, quantities and packaging commonly used by food stores not principally engaged in selling foods prepared and ready to be eaten.” 20 NYCRR 527.8(a)(3). See Tax Bulletin ST-65 -Beverages Sold by Food Stores, Beverage Centers and Similar Establishments; Tax Bulletin ST-525 - Listings of Taxable and Exempt Foods and Beverages Sold by Food Stores and Similar Establishments.

Petitioner states that its product will be sold unheated for off-premises consumption both online and in grocery stores. When sold in this manner, Petitioner’s product is not subject to sales tax under Tax Law § 1115(d). However, Petitioner’s product will be subject to tax under Tax Law § 1105(d) if the product is sold by a restaurant, tavern or similar establishment, or through a vending machine, unless it is sold in an unheated state for off-premises consumption in the same form, condition, quantities or packaging as it is sold in grocery stores.

DATED: August 14, 2024

Mary Ellen Ladouceur
Principal Attorney

Note: An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued ant d only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.