Which restaurant purchases were taxable or exempt from South Carolina sales and use tax under RR 95-6?

Plain-English summary

South Carolina Revenue Ruling 95-6 divided restaurant purchases into three practical groups.

Food and drink ingredients were not taxable. The ruling treated food products, beverage ingredients, condiments, and ingredients incorporated into the meal as wholesale purchases for resale. Cooking oil and shortening also qualified when they became ingredients in the food, including oil absorbed during frying; they were taxable when used for another purpose.

Qualifying packaging was not taxable. Containers and materials used incident to the sale and delivery of food or beverages—including cups and lids, disposable or reusable plates, drinking glasses, and qualifying bags, wraps, buckets, pails, tissue, waxed paper, and foil—were nontaxable when used for that function. The same products were taxable when used for storage or another nonqualifying purpose.

Restaurant operating supplies were taxable. The ruling listed napkins, straws, forks, knives, spoons, coffee stirrers, toothpicks, skewers, steak markers, tray liners, trays, bibs, placemats, table covers, towels, uniforms, guest checks, office and cleaning supplies, cooking and serving utensils, equipment, furniture, and fixtures as taxable purchases.

The Department's core distinction was whether the restaurant bought an item for resale or qualifying delivery with the food, or instead used and consumed it while operating the business. RR 95-6 superseded RR 92-3.

Common questions

Q: Were napkins and disposable utensils exempt because customers received them with food? No. The ruling treated napkins, straws, forks, knives, spoons, and similar supplies as taxable items consumed by the restaurant.

Q: Were takeout containers taxable? Not when used incident to the sale and delivery of the restaurant's food or drink. Containers used for storage or another purpose were taxable.

Q: Was frying oil taxable? Not when it became an ingredient of the food being sold. The ruling said cooking oil and shortening were taxable when used for another purpose.

Q: Were reusable plates and drinking glasses taxable? The ruling's conclusion classified plates, disposable or reusable, and drinking glasses as nontaxable.

Q: Did the ruling decide every restaurant purchase? No. It said unlisted items had to be considered case by case.

Citations and references

• S.C. Code Ann. §§ 12-36-110 and 12-36-120 (retail and wholesale sales)
• S.C. Code Ann. §§ 12-36-910(A) and 12-36-1310(A) (sales and use tax provisions)
• S.C. Code Ann. § 12-36-2120(14) (wrapping paper, bags, and containers)
• S.C. Regulation 117-174.79 (packaging and restaurant supplies)
• Commission Decision #95-11 (oil, shortening, utensils, napkins, straws, and tray liners)

Subject

Purchases by Restaurants

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR95-6.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING 95-6 (TAX)

SUBJECT:

Purchases by Restaurants
Sales and Use Tax)

EFFECTIVE DATE: Applies to all periods open under statute.
SUPERSEDES:

SC Revenue Ruling #92-3

REFERENCE:

S.C. Code Ann. Section 12-36-110 (Supp. 1993)
S.C. Code Ann. Section 12-36-120 (Supp. 1993)
S.C. Code Ann. Section 12-36-910(A) (Supp. 1993)
S.C. Code Ann. Section 12-36-1310(A) (Supp. 1993)
S.C. Code Ann. Section 12-36-2120(14) (Supp. 1993)
Regulation 117-174.79

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1993)
SC Revenue Procedure #94-1

SCOPE:

A Revenue Ruling is the Department of Revenue's official advisory
opinion of how laws administered by the Department are to be applied to a
specific issue or a specific set of facts, and is provided as guidance for all
persons or a particular group. It is valid and remains in effect until
superseded or modified by a change in the statute or regulations or a
subsequent court decision, Revenue Ruling or Revenue Procedure.

Question:
What guidelines can the Department provide that will assist restaurants in determining their sales
and use tax liability on purchases of tangible personal property?
Conclusion:
The Department provides the following guidelines with respect to the sales and use taxes on
purchases by restaurants ("NT" - Not Taxable, "T" - Taxable):
Aluminum Foil
Beverage Ingredients
Coasters
Coffee Stirrers
Cooking Equipment
Cooking Oil
Cooking Utensils
Condiments

*
NT
T
T
T
+
T
NT

Bibs
T
Cleaning Supplies
T
Paper Buckets or Pails
*
Paper or Plastic Bags
*
Place Mats
T
Plates (disposable or reusable) NT
Serving Utensils
T
Shortening
+
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Cups & Lids
Drinking Glasses
Food Containers & Wraps
Food Products & Ingredients
Forks, Knives & Spoons
Furniture & Fixtures
Guest Checks
Napkins
Office Supplies

NT
NT
*
NT
T
T
T
T
T

Skewers
Steak Markers
Table Covers
Tissue Paper
Toothpicks
Towels (paper or cloth)
Tray Liners
Trays
Uniforms
Waxed Paper

T
T
T
*
T
T
T
T
T
*

• • Materials and containers used incident to the sale and delivery of food and drink products are
    not taxable; however, materials and containers used for other purposes are taxable (e.g.
    storage containers).
• • These items are not taxable only when used as an ingredient in the food products being sold.
    NOTE: Other items are to be considered on a case-by-case basis.
    Facts:
    Advice has been requested by restaurants with regard to their sales and use tax liability on
    purchases of tangible personal property. In addition to selling food and beverage products, many
    restaurants provide their customers with napkins, straws, utensils, condiments (salt, pepper,
    ketchup, etc.) and other ancillary items, which facilitate the consumption of the food or beverage
    products. Most restaurants make these items readily accessible to their customers for self service
    (e.g. placing individual serving size packages of condiments or plastic utensils on counters for
    use with the food products at the customer's discretion) and others attempt to regulate or limit the
    quantity of such items available to customers by providing them only upon request or including
    them in the food or beverage package transferred to the customer. Also, restaurants use a variety
    of containers, packaging materials, and supplies in their business of selling food and beverage
    products.
    Discussion:
    Pursuant to Code Section 12-36-910(A):
    A sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every
    person engaged or continuing within this State in the business of selling tangible personal
    property at retail. (Emphasis added.)
    In accordance with Code Section 12-36-1310(A):
    A use tax is imposed on the storage, use, or other consumption in this State of tangible
    personal property purchased at retail for storage, use, or other consumption in this State,
    at the rate of five percent of the sales price of the property, regardless of whether the
    retailer is or is not engaged in business in this State. (Emphasis added.)
    2

The terms "sale at retail" and "retail sale" are defined at Code Section 12-36-110, in part, as "all
sales of tangible personal property except those defined as wholesale sales". Further, the terms
are defined to include (with certain exceptions) the withdrawal, use, or consumption of tangible
personal property by anyone who purchases it at wholesale.
Code Section 12-36-120 provides, in pertinent part:
"Wholesale sale" and "sale at wholesale" mean a sale of:
(1) tangible personal property to licensed retail merchants, jobbers, dealers, or
wholesalers for resale, and do not include sales to users or consumers;

(4) materials, containers, cores, labels, sacks, or bags, used incident to the sale and
delivery of tangible personal property.
Code Section 12-36-2120(14) exempts from the sales and use taxes sales or purchases of:
wrapping paper, wrapping twine, paper bags, and containers, used incident to the sale and
delivery of tangible personal property.
In summary, in order for either the sales or use tax to apply, there must be a retail sale of tangible
personal property. Sales of tangible personal property to users or consumers are retail sales
subject to tax. Sales of tangible personal property to licensed retailers for resale and sales of
materials, containers, sacks or bags used incident to the sale and delivery of tangible personal
property are not taxable.
In considering this issue, it must be determined whether tangible personal property is used or
consumed by restaurants, purchased for resale, or used incident to the sale and delivery of the
restaurants' food and beverage products.
Regulation 117-174.79, provides guidance and reads:
Licensed retailers purchase free of sales or use taxes wrapping paper, wrapping twine,
paper bags and containers for use incident to the delivery of tangible personal property
sold by them. They also purchase tax-free materials used in packaging personal property
sold by them. They also purchase tax-free materials used in packaging tangible personal
property for shipment or sale.
The list below while illustrative of items falling within the Rule announced above is not
exhaustive:
Souffle cups, butter chips, paper cups, paper plates, boxes and crates and glazed tissue
used to package articles of food.

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It will be seen that items such as straws, napkins, wooden or paper spoons and forks do
not meet the requirements outlined above and, hence, must bear the tax. Such items are
rather in the nature of supplies used or consumed by the retailer in the operation of his or
its business.
Hence, purchases of tangible personal property for resale and purchases of materials, containers,
cores, labels, sacks, or bags used incident to the sale and delivery of tangible personal property
are not subject to the sales or use taxes. Purchases of straws, napkins, and utensils are made at
retail and are, therefore, subject to tax.
Commission Decision #95-11 upheld the taxation of utensils, napkins, straws, and tray liners
purchased by a restaurant but also addressed the taxation of cooking oil and shortening. In this
case the cooking oil and shortening were used for frying food products for sale; however, the
shortening was also used as an ingredient to make biscuits. When used for frying, in excess of
70% of the cooking oil and shortening was used or consumed in the process. Thus, the
Commission held that the cooking oil and shortening were not subject to tax. The Commission
stated that:
The cooking oil and shortening are absorbed by the food. The cooking oil is used as a
part of the food being sold. Just as flour, salt or spices become a part of the food item
during preparation, the cooking oil and shortening become a part of the food during the
cooking portion of the preparation. The Department's established view is that restaurants
are making purchases at wholesale when they purchase ingredients of food products sold
to customers. We find and conclude the cooking oil and shortening are ingredients of the
food products sold, and thus such purchases are made at wholesale and are nontaxable.
For questions concerning the taxation of products purchased by restaurants, contact Steve
Hallman at (803) 737-4433 or John McCormack at (803) 737-4438.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director
Columbia, South Carolina
, 1995
June 5

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