A Tennessee retailer sells trail mixes, glucose tablets, electrolyte drinks, non-alcoholic beer, coupon books, hearing aid batteries, and propane. Which are taxed at the lower 5% food rate, which at the full 7% rate, and which are exempt?

Plain-English summary

A Tennessee retailer asked the Department to classify a basket of products it sells. The answer is a useful tour of how Tennessee taxes food and a few tricky items, because Tennessee taxes "food and food ingredients" at a reduced 5% state rate (plus local tax up to 2.75%), while most other goods are taxed at the general 7% state rate (plus local).

The edible items — almost all at the 5% food rate. "Food and food ingredients" means substances sold for human ingestion for their taste or nutritional value, except alcoholic beverages, candy, dietary supplements, tobacco, and prepared food. Running the retailer's items through that test:

• Non-alcoholic cocktail mixes and non-alcoholic beer — each contains less than 0.5% alcohol by volume, so they are not "alcoholic beverages." Food rate (5%).
• Three trail mixes (chocolate-covered peanuts; fruit and nuts; sesame sticks) — even though they combine sugar with fruits and nuts, "candy" must be in the form of "bars, drops, or pieces," and a loose mixture of different ingredients is not a "piece." So they are not candy. Food rate (5%).
• Fiber drink mix, food thickener, the oral electrolyte solutions (flavored, unflavored, frozen), the electrolyte powder, and distilled water with electrolytes — the only exclusion that could apply is "dietary supplement," but a dietary supplement must carry a "Supplement Facts" panel (per 21 CFR 101.36). None of these labels has one, so none is a dietary supplement. Food rate (5%).
• Glucose tablets — the lone exception. They are sweeteners (dextrose and cellulose) combined with flavoring in the form of pieces (each tablet is a portion with the same makeup as the whole), so they fit the definition of "candy" and are excluded from "food." Full 7% state rate (plus local).

The non-edible items — three different answers.

• Coupon book — not taxable. Although it is printed on paper (tangible personal property), the "true object" of the sale is the intangible right to future discounts, not the paper. Following Barnes & Noble Superstores, the sale is not subject to sales or use tax. (Side note: the retailer cannot buy the coupon books with a resale certificate — it is reselling an intangible right, not the paper — so it owes tax on its own purchase of the books.)
• Hearing aid batteries — exempt. A hearing aid is a prosthetic device (a corrective device worn in the body to correct a malfunction), and the exemption covers a prosthetic device's replacement parts, so the batteries are exempt too.
• Propane — 7% state tax, but no local tax. Propane is tangible personal property. The residential-energy-fuels exemption does not apply because the propane is sold over the counter in cylinders under 100 lbs. But a separate exemption for natural or artificial gas removes propane from the local option tax, so it is taxed at the 7% state rate only. Whether the customer trades in an empty tank doesn't change the rate — under the trade-in rule, tax is figured on the net difference (price of the filled tank minus the credit for the empty one).

Because this is a Revenue Ruling, it is advisory and not binding on the Department — and product classifications turn on each item's exact ingredients, form, and labeling.

What this means for you

Grocers, convenience stores, and general retailers

The 5%-vs-7% line is worth getting right on every SKU. Tennessee's reduced food rate covers most groceries, but candy, dietary supplements, alcoholic beverages, prepared food, and tobacco are kicked up to the full rate. Two bright lines from this ruling help: "candy" requires bars/drops/pieces (a loose trail mix isn't candy, even with chocolate and sugar in it), and a "dietary supplement" must have a "Supplement Facts" label (a drink mix or electrolyte product with only a "Nutrition Facts" panel is food). Glucose tablets show the flip side — pressed pieces of sweetener are candy.

Pharmacies, medical-supply, and discount-program sellers

Prosthetic-device exemptions reach replacement parts, which is why hearing-aid batteries ride the hearing aid's exemption. And anything whose real value is an intangible right — a coupon book, a discount card, a membership entitling the buyer to future savings — can fall outside sales tax under the true-object test, even though something physical changes hands. Remember the resale-certificate trap: if what you resell is the intangible right (not the paper), you owe tax on your own purchase of the physical item.

Propane and fuel sellers, and accountants/tax professionals

Propane is a split result: state tax yes, local option tax no (the natural/artificial-gas local exemption), and the residential-fuel exemption is off the table for small over-the-counter cylinders (under 100 lbs). On tank exchanges, apply the trade-in rule and tax the net difference. For everyone, watch the bundling rule — combining a nontaxable item with a taxable one for a single price can pull the whole charge into tax.

Common questions

Q: Is trail mix taxed as candy in Tennessee?
A: Not in this ruling. "Candy" has to be in the form of bars, drops, or pieces. A loose mixture of different ingredients (nuts, fruit, sesame sticks, even with chocolate) is not a "piece," so the trail mixes were taxed at the 5% food rate, not the candy rate.

Q: Are electrolyte drinks and drink mixes taxed at the food rate?
A: Here, yes. The only exclusion that could apply was "dietary supplement," which requires a "Supplement Facts" label under 21 CFR 101.36. Because these products carried a Nutrition Facts panel instead, they were "food and food ingredients" at 5%.

Q: Are hearing aid batteries taxable?
A: No. A hearing aid is an exempt prosthetic device, and the prosthetic-device exemption covers replacement parts, so hearing aid batteries are exempt from Tennessee sales and use tax.

Q: How is propane taxed when I exchange an empty tank?
A: Propane sold over the counter is subject to the 7% state tax but exempt from local option tax. If you trade in an empty tank, tax is calculated on the net difference — the price of the filled tank minus the credit for the empty tank.

Q: Can I rely on this revenue ruling?
A: No. A Tennessee revenue ruling is advisory and is not binding on the Department, and these classifications depend on each product's exact ingredients, form, and labeling. Use it as guidance and confirm your own items with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-102(41) ("food and food ingredients"); exclusions: § 67-6-102(6) ("alcoholic beverages"), § 67-6-102(9) ("candy"), § 67-6-102(26) / § 67-6-102(26)(C) ("dietary supplement," 21 CFR 101.36 "Supplement Facts" label)
• § 67-6-228(a) (5% state rate on food); § 67-6-228(b) (excluded items taxed at the general rate); § 67-6-202(a) (7% general state rate); § 67-6-702(a)(1) (local option up to 2.75%); § 67-6-203(a) (use tax)
• § 67-6-314(1) (prosthetic-device exemption, including replacement parts); § 67-6-102(70)(A) ("prosthetic device")
• § 67-6-704 (local-option-tax exemption for natural or artificial gas, incl. propane); § 67-6-334 / § 67-6-334(b)(4)(A) (residential-energy-fuels exemption; excludes cylinders under 100 lbs); § 67-6-510(a) (trade-in credit — tax on the net difference)
• § 67-6-102(78)(A) ("sale"); § 67-6-102(76) ("retail sale"); § 67-6-102(89)(A) ("tangible personal property"); § 67-6-102(81)(A) and § 67-6-102(81)(A)(vi) ("sales price" / bundling); § 67-6-102(79) (sales price)
• § 67-6-101 to -907 (Retailers' Sales Tax Act)

Tennessee cases cited by the ruling:

• Barnes & Noble Superstores, Inc. v. Huddleston, 1996 WL 596955 (Tenn. Ct. App. 1996) (true object of a discount-card/coupon sale is the intangible right to a discount, not the paper — not taxable)
• Tomkats Catering, Inc. v. Johnson, 2001 WL 1090516 (Tenn. Ct. App. 2001) (bundling — single price for taxable and nontaxable items)
• Beare Co. v. Tenn. Dep't of Revenue, 858 S.W.2d 906 (Tenn. 1993) and Tenn. Farmers Assurance Co. v. Chumley, 197 S.W.3d 767 (Tenn. Ct. App. 2006) (undefined statutory terms — here "piece" — take their common meaning)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/14-08.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 14-08

WARNING
Revenue rulings are not binding on the Department. This ruling is based on the particular
facts and circumstances presented, and is an interpretation of the law at a specific point in
time. The law may have changed since this ruling was issued, possibly rendering it obsolete.
The presentation of this ruling in a redacted form is provided solely for informational
purposes, and is not intended as a statement of Departmental policy. Taxpayers should
consult with a tax professional before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee sales and use tax to the sale of various edible and non-edible
products.
SCOPE
Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.
FACTS
A retailer (the “Taxpayer”) operates business locations within Tennessee. The Taxpayer sells a
variety of products to be consumed by humans for their taste or nutritional value, among which
are the following items (the “Edible Products”):
•
•
•
•
•
•
•
•
•
•

[NON-ALCOHOLIC COCKTAIL MIXES] (“Non-Alcoholic Cocktail Mixes”)
[NON-ALCOHOLIC BEER] (“Non-Alcoholic Beer”)
[TRAIL MIX WITH CHOCOLATE COVERED PEANUTS] (“Trail Mix with
Chocolate Covered Peanuts”)
[TRAIL MIX WITH FRUIT AND NUTS] (“Trail Mix with Fruit and Nuts”)
[TRAIL MIX WITH SESAME STICKS] (“Trail Mix with Sesame Sticks”)
[FIBER DRINK MIX] (“Fiber Drink Mix”)
[FOOD THICKENER] (“Food Thickener”)
[GLUCOSE TABLETS] (“Glucose Tablets”)
[ORAL ELECTROLYTE REPLACEMENT SOLUTION (FLAVORED)] (“Oral
Electrolyte Replacement Solution (flavored)”)
[ORAL ELECTROLYTE REPLACEMENT SOLUTION (UNFLAVORED)]
(“Oral Electrolyte Replacement Solution (unflavored)”)

•
•
•

[ORAL ELECTROLYTE REPLACEMENT SOLUTION (FROZEN)] (“Oral
Electrolyte Replacement Solution (frozen)”)
[ORAL ELECTROLYTE REPLACEMENT POWDER] (“Oral Electrolyte
Replacement Powder”)
[DISTILLED WATER WITH ELECTROLYTES] (“Distilled Water with
Electrolytes”)

A full list of ingredients for each of these items is attached as Appendix A.
Additionally, the Taxpayer sells the following products (the “Non-Edible Products”):
•
•
•
•

[COUPON BOOK] (“Coupon Book”)
[HEARING AID BATTERIES] (“Hearing Aid Batteries”)
[PROPANE (WITHOUT EXCHANGE)] (“Propane (Without Exchange)”)
[PROPANE (WITH EXCHANGE)] (“Propane (With Exchange)”)

A full description of each of these items is also included in Appendix A.
RULINGS
1.

Are the Edible Products sold by the Taxpayer for human consumption considered “food
and food ingredients” for Tennessee sales and use tax purposes?
Ruling: All of the Edible Products, except for the Glucose Tablets, are considered “food
and food ingredients” for Tennessee sales and use tax purposes and are subject to the
sales and use tax at the state rate of 5%, plus the applicable local option rate of up to
2.75%. The Glucose Tablets are not considered “food or food ingredients” and are
therefore subject to the Tennessee sales and use tax at the state rate of 7%, plus the
applicable local option rate of up to 2.75%.

2.

Are the Non-Edible Products sold by the Taxpayer subject to Tennessee sales and use
tax?
Ruling: The Taxpayer’s sales of Coupon Books are not subject to the Tennessee sales and
use tax because the “true object” of the transaction is the sale of the intangible right to a
discount. The Hearing Aid Batteries are exempt from the Tennessee sales and use tax as
prosthetic devices. The Taxpayer’s sale of Propane, regardless of whether there is an
exchange of an empty tank, is subject to the Tennessee state level sales and use tax as the
sale of tangible personal property but are exempt from the local option tax.
ANALYSIS

The following table lists the items sold by the Taxpayer, states the taxability of each particular
item, and numerically references the applicable explanation. Such explanations appear after the
table.

TABLE OF ITEMS
Edible Products
Non-Alcoholic Beer
Non-Alcoholic Cocktail Mixes
Trail Mix with Chocolate Covered Peanuts
Trail Mix with Fruit and Nuts
Trail Mix with Sesame Sticks
Fiber Drink Mix
Food Thickener
Oral Electrolyte Replacement Solution (Flavored)
Oral Electrolyte Replacement Solution (Unflavored)
Oral Electrolyte Replacement Solution (Frozen Sticks)
Oral Electrolyte Replacement Powder
Distilled Water With Electrolytes
Glucose Tablets
Non-Edible Products
Coupon Book
Hearing Aid Batteries
Propane (Without Exchange of Empty Tank)
Propane (With Exchange of Empty Tank)

Food?

Explanation

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Tax Exempt/Not
Subject to Tax?
Yes
Yes
See below
See below

1
1
2
2
2
3
3
4
4
4
4
4
5
Explanation
6
7
8
8

EXPLANATIONS
Under the Retailers’ Sales Tax Act,1 the retail sale in Tennessee of tangible personal property is
subject to the sales and use tax, unless an exemption applies. “Retail sale” is defined as “any
sale, lease, or rental for any purpose other than for resale, sublease, or subrent.”2
TENN. CODE ANN. § 67-6-102(78)(A) (2013) defines “sale” in pertinent part to mean “any
transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise,
in any manner or by any means whatsoever of tangible personal property for a consideration.”
“Tangible personal property” includes “property that can be seen, weighed, measured, felt, or
touched, or that is in any other manner perceptible to the senses.”3 Conversely, the sale of an

1

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN.
CODE ANN. §§ 67-6-101 to -907 (2013)).

2

TENN. CODE ANN. § 67-6-102(76) (2013).

3

TENN. CODE ANN. § 67-6-102(89)(A).

intangible right, even if embodied in tangible personal property, is generally not subject to the
Tennessee sales and use tax.4
In addition, a nontaxable item may be subject to taxation when charges for the nontaxable item
are combined with charges for a taxable good or service into a single price. Specifically, TENN.
CODE ANN. § 67-6-102(81)(A) provides that the sales price of a good or service equals the “total
amount of consideration . . . for which personal property or services are sold.” Thus, if taxable
goods and nontaxable goods are sold together for a single charge, the entire charge is generally
subject to taxation, with the bundled sales price as the measure of the tax.5
With certain exceptions that do not apply to the facts presented in this ruling, tangible personal
property sold at retail in Tennessee is generally subject to the sales and use tax at the state rate of
7% of the sales price.6 Counties and incorporated cities are authorized to impose a local option
tax on all privileges subject to the state tax at a rate of up to 2.75% of the sales price.7
The Retailer’s Sales Tax Act imposes the use tax at the same rates as the sales tax on “the
purchase price of each item or article of tangible personal property when the tangible personal
property is not sold, but is used, consumed, distributed, or stored for use or consumption in this
state; provided that, there shall be no duplication of the tax.”8
EDIBLE PRODUCTS
Those items meeting the TENN. CODE ANN. § 67-6-102(41) definition of “food and food
ingredients” are subject to the sales and use tax at the state rate of 5% of their sales price.9 The

4

See generally Barnes & Noble Superstores, Inc. v. Huddleston, No. 01A01-9604-CH-00149, 1996 WL 596955, at
*2 (Tenn. Ct. App. Oct. 18, 1996) (holding that the sale of discount cards that entitle purchasers to a discount on
subsequent purchases of merchandise is not subject to Tennessee sales tax because the “true object” of a discount
card transaction is to bestow upon a customer the intangible right to receive a discount). Note that the “true object”
test is very fact-specific and must be applied on a case-by-case basis. Accordingly, the application of the “true
object” test in this revenue ruling is limited to the specific facts provided by the Taxpayer.

5

See Tomkats Catering, Inc. v. Johnson, No. M2000-03107-COA-R3-CV, 2001 WL 1090516, at *2 (Tenn. Ct. App.
Sept. 19, 2001); cf. TENN. CODE ANN. § 67-6-102(81)(A)(vi) (“Sales price” includes “[t]he value of exempt personal
property given to the purchaser where taxable and exempt personal property have been bundled together and sold by
the seller as a single product or piece of merchandise.”).
6

TENN. CODE ANN. § 67-6-202(a) (2013).

7

TENN. CODE ANN. § 67-6-702(a)(1) (2013); see generally Tennessee Department of Revenue, List of Local Option
Tax Rates, available at http://tn.gov/revenue/pubs/taxlist.pdf (last accessed June 11, 2014).

8

9

TENN. CODE ANN. § 67-6-203(a) (2013).

TENN. CODE ANN. § 67-6-228(a) (2013). The state sales tax rate applicable to food and food ingredients was
lowered from 5.25% to 5% as a result of recent legislation. See Act of April 15, 2013, ch. 323, § 1, 2013 Tenn. Pub.
Acts (codified at TENN. CODE ANN. § 67-6-228(a)).

local option sales tax also applies to sales of “food and food ingredients” at a rate of up to 2.75%
of the sales price.10
“Food and food ingredients” is defined in pertinent part to mean “substances, whether in liquid,
concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by
humans and are consumed for their taste or nutritional value.”11 The term “food and food
ingredients,” however, does not include alcoholic beverages, candy, dietary supplements,
tobacco, or prepared food.12 Such items, therefore, are taxed at the rates applicable to sales of
tangible personal property, i.e., a 7% state rate and a local option rate of up to 2.75%.13
The Taxpayer represents that all of the Edible Items it sells are generally in liquid or solid form
and sold for human ingestion for taste or nutritional value. Consequently, an Edible Item will
properly be considered “food and food ingredients” unless it falls within one of the exceptions to
the definition. For purposes of this ruling, the relevant exceptions are: 1) alcoholic beverages;
2) candy; and 3) dietary supplements.14
“Alcoholic beverages” are “beverages that are suitable for human consumption and contain one
half of one percent (0.5%) or more of alcohol by volume.”15
“Candy” is “a preparation of sugar, honey, or other natural or artificial sweeteners in
combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars,
drops, or pieces. Candy shall not include any preparation containing flour and shall require no
refrigeration.”16 The term “piece” is not defined by the Tennessee Code or the Tennessee courts
for Tennessee sales and use tax purposes.17 A “piece” is commonly understood to be a portion
that has the same make-up as the product taken as a whole.18 Different individual ingredients and
loose mixtures of different items that make up an entire product are not pieces. A product

10

See generally TENN. CODE ANN. § 67-6-702(a)(1).

11

TENN. CODE ANN. § 67-6-102(41).

12

Id.

13

TENN. CODE ANN. § 67-6-228(b).

14

See TENN. CODE ANN. § 67-6-102(41). Note that although tobacco and prepared food are excluded from the
definition of food and food ingredients, those items are not relevant to this ruling and are not further discussed.

15

TENN. CODE ANN. § 67-6-102(6).

16

TENN. CODE ANN. § 67-6-102(9).

17

The Tennessee Supreme Court has stated that when a statute does not define a term, it is proper to look to
common usage to determine the term’s meaning. See, e.g., Beare Co. v. Tenn. Dep’t of Revenue, 858 S.W.2d 906,
908 (Tenn. 1993); see also Tenn. Farmers Assurance Co. v. Chumley, 197 S.W.3d 767, 782-83 (Tenn. Ct. App. 2006).
18

For example, a “piece” is commonly understood to be “an object . . . regarded as a unit of a kind or class.”
MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 938 (11th ed. 2003).

comprised of such differing ingredients is therefore not candy, even if some of the ingredients
would be considered candy on an individual basis.
To be classified as a “dietary supplement,” a product must among other things “be labeled as a
dietary supplement, identifiable by the supplement facts box found on the label and as required
pursuant to 21 CFR 101.36,”19 which, in turn, requires that the declaration of nutrition
information on the label contain the heading “Supplement Facts.” Therefore, if the nutrition label
of an Edible Product does not contain the heading “Supplement Facts,” that item is not a dietary
supplement.

1. Non-Alcoholic Cocktail Mixes and Non-Alcoholic Beer
   Non-Alcoholic Cocktail Mixes and Non-Alcoholic Beer qualify as “food and food ingredients”
   for sales and use tax purposes.
   While Non-Alcoholic Cocktail Mixes and the Non-Alcoholic Beer are each beverages suitable
   for human consumption, that facts indicate that neither product contains 0.5% or more of alcohol
   by volume. Thus, both products fall short of the definition of “alcoholic beverage,” and are
   classified as “food and food ingredients.” They are subject to the Tennessee sales and use tax at
   the state rate of 5% and the local option rate of up to 2.75%.
2. Trail Mix Products
   Trail Mix with Chocolate Covered Peanuts, Trail Mix with Fruit and Nuts, and Trail Mix with
   Sesame Sticks qualify as “food and food ingredients” for sales and use tax purposes.
   Although Trail Mix with Chocolate Covered Peanuts, Trail Mix with Fruit and Nuts, and Trail
   Mix with Sesame Sticks are preparations of sugar in combination with fruits and nuts, these
   products each consist of a loose mixture of different individual ingredients that make up the
   product as a whole, rather than being sold in the form of bars, drops, or pieces. Because the
   definition of “candy” requires that it be in the form of bars, drops, or pieces, the exception for
   “candy” from the definition of “food and food ingredients” is inapplicable to the Trail Mix
   Products.
   Thus, the Trail Mix Products are properly classified as “food and food ingredients” and are
   subject to the Tennessee sales and use tax at the state rate of 5% and the local option rate of up to
   2.75%.
3. Fiber Drink Mix and Food Thickener
   Fiber Drink Mix and Food Thickener qualify as “food and food ingredients” for sales and use tax
   purposes.
   The only exception from the definition of “food and food ingredients” potentially applicable to
   Fiber Drink Mix and Food Thickener is that for “dietary supplements.” The Fiber Drink Mix and
   19

TENN. CODE ANN. § 67-6-102(26)(C).

Food Thickener, however, do not display nutrition information on their labels containing the
heading “Supplement Facts,” a necessary element to constitute a “dietary supplement.”
Therefore, the Fiber Drink Mix and Food Thickener are classified as “food and food ingredients”
and are subject to the Tennessee sales and use tax at the state rate of 5% and the local option rate
of up to 2.75%.

4. Oral Electrolyte Replacement Solution/Powder & Distilled Water with Electrolytes
   All of the Oral Electrolyte Replacement Solutions (flavored, unflavored and frozen), the Oral
   Electrolyte Replacement Powder, and the Distilled Water with Electrolytes qualify as “food and
   food ingredients” for sales and use tax purposes.
   The only exception to the definition of “food and food ingredients” potentially applicable to the
   Oral Electrolyte Replacement Solutions (flavored, unflavored and frozen), the Oral Electrolyte
   Replacement Powder, and the Distilled Water with Electrolytes is that for “dietary supplements.”
   These products, however, fail to display nutrition information on their labels containing the
   heading “Supplement Facts” and, as such, do not meet the definition of a “dietary supplement.”
   Therefore, the Oral Electrolyte Replacement Solutions (flavored, unflavored and frozen), the
   Oral Electrolyte Replacement Powder, and the Distilled Water with Electrolytes are considered
   “food and food ingredients” and are subject to the Tennessee sales and use tax at the state rate of
   5% and the local option rate of up to 2.75%.
5. Glucose Tablets
   The Glucose Tablets are properly considered “candy” for sales and use tax purposes.
   The Glucose Tablets are preparations of natural or artificial sweeteners (dextrose and cellulose)
   in combination with other ingredients or flavorings (natural & artificial grape flavor) in the form
   of pieces. Each tablet is a portion that has the same make up as the product as a whole.
   Consequently, Glucose Tablets meet the definition of “candy” under TENN. CODE ANN. § 67-6102(9) and are thus excluded from the definition of “food and food ingredients.” The Glucose
   Tablets are therefore subject to the Tennessee sales and use tax at the state rate of 7% and the
   local option rate of up to 2.75%.20
   NON-EDIBLE PRODUCTS
   As stated above, retail sales of tangible personal property in Tennessee are generally subject to
   the sales and use tax, unless an exemption applies.
   6.
   20

Coupon Books

Note that because the Glucose Tablets meet the definition of “candy,” it is not necessary to address whether they
might also meet the definition of “dietary supplement” under TENN. CODE ANN. § 67-6-102(26).

The Taxpayer’s sale of Coupon Books is not subject to the Tennessee sales and use tax.
At first blush, the sale of a Coupon Book ostensibly meets the requirements to be considered the
sale of tangible personal property.
Nevertheless, where a sale involves tangible personal property that serves as mere indicia of an
intangible right that is the “true object” of the transaction, the Tennessee Court of Appeals has
held the sale is not subject to the sales and use tax.21
In Barnes & Noble Superstores, Inc. v. Huddleston, the Tennessee Court of Appeals found that a
bookstore’s sale of membership cards, entitling purchasers to future discounts on merchandise,
was not subject to the sales tax. It reasoned that because a member has no obligation to ever
purchase any merchandise, the member may ultimately elect not to avail himself of the privilege
of buying anything. The “true object” of the transactions between the bookstore and its
customers, therefore, was to bestow upon members the intangible right to receive a discount on
merchandise. The membership card was merely an indicia of that intangible right and
incidentally aided in the exercise of that right.22
Similar to the membership cards in Barnes and Noble, the “true object” of the Taxpayer’s sale of
the Coupon Book is not for the customer to receive the physical paper on which the book is
printed, but rather for the customer to receive the intangible future discounts that the Coupon
Book represents. Sales of such intangible rights are not subject to the sales and use tax.
Consequently, the Taxpayer’s sale of Coupon Books is not subject to the Tennessee sales and use
tax.23

7. Hearing Aid Batteries
   Hearing Aid Batteries are exempt from the sales and use tax as prosthetic devices.
   Hearing Aid Batteries are tangible personal property, the sale of which is subject to the sales and
   use tax unless an exemption applies.
   TENN. CODE ANN. § 67-6-314(1) exempts from the Tennessee sales and use tax “prosthetic
   devices for human use and repair services for the repair and maintenance of those prosthetic
   devices.” The term “prosthetic device” is defined as

21

See Barnes & Noble Superstores, Inc. v. Huddleston, No. 01A01-9604-CH-00149, 1996 WL 596955, at *2 (Tenn.
Ct. App. Oct. 18, 1996).

22

23

See Barnes & Noble Superstores, Inc., 1996 WL 596955, at *2.

Note that the Taxpayer may not use a sale for resale certificate to purchase the Coupon Books because, as
discussed above, the Taxpayer is not reselling the book as tangible personal property, but rather is reselling the
intangible right to a future discount. Thus, the Taxpayer must pay sales or use tax on its purchase of Coupon Books.

a replacement, corrective, or supportive device including repair and
replacement parts for the replacement, corrective, or supportive device worn in
or on the body to: (i) [a]rtificially replace a missing portion of the body; (ii)
[p]revent or correct physical deformity or malfunction; or (iii) [s]upport a weak or
deformed portion of the body.24
A “prosthetic device,” therefore, includes not only those items commonly understood to be
prosthetic devices, but also replacement parts for a prosthetic device. A hearing aid is a
prosthetic device because it is a corrective device worn in a person’s body to correct a physical
malfunction. Therefore, as replacement parts for a hearing aid, the Hearing Aid Batteries sold by
the Taxpayer also qualify as prosthetic devices.
The Taxpayer’s sales of Hearing Aid Batteries are consequently exempt from the Tennessee
sales and use tax.

8. Propane
   The Taxpayer’s sale of Propane, regardless of whether there is an exchange of an empty tank, is
   subject to the Tennessee state level sales and use tax as the sale of tangible personal property. Its
   sale of Propane, however, is exempt from the local option tax because the sale of propane falls
   within the exemption provided in TENN. CODE ANN. § 67-6-704 (2013).
   Propane is tangible personal property, the sale of which is subject to the Tennessee sales and use
   tax unless an exemption applies.
   The only exemption from the state level sales and use tax potentially applicable to the
   Taxpayer’s sale of Propane is the exemption for “energy fuels sold directly to the consumer for
   residential use.”25 This exemption, however, does not apply to propane sold over the counter in
   cylinders with a capacity of less than one hundred pounds (100 lbs.).26
   Although the Taxpayer’s sells Propane directly to the consumer for residential use, it sells the
   Propane over the counter in cylinders with a capacity of less than one hundred pounds (100 lbs.).
   Therefore, the Propane does not qualify for this exemption.
   TENN. CODE ANN. § 67-6-704, however, provides for an exemption from the local option tax on
   “the sale, purchase, use, consumption or distribution of . . . natural or artificial gas,”27 which
   includes the sale of propane. Accordingly, the Taxpayer’s sale of Propane is exempt from the
   local option sales tax.

24

TENN. CODE ANN. § 67-6-102(70)(A) (2013) (emphasis added).

25

TENN. CODE ANN. § 67-6-334 (2013).

26

TENN. CODE ANN. § 67-6-334(b)(4)(A).

27

TENN. CODE ANN. § 67-6-704 (2013).

The proper measure of the state level tax base is the sales price charged in consideration for the
tangible personal property.28 Thus, whether a customer exchanges an empty tank as part of the
transaction does not determine the amount taxed.
For example, the sales price of Propane without the exchange of an empty tank is $50. The sale
of Propane in conjunction with the exchange of an empty tank is a similar but slightly different
transaction. In this case, the same tank and propane are purchased, but the consideration given
includes a used empty tank together with $30. TENN. CODE ANN. § 67-6-510(a) (2013) provides
that “[w]here used articles are taken in trade . . . as a credit or part payment on the sale of new or
used articles, the tax . . . [is] paid on the net difference, that is, the price of the new or used article
sold, less the credit for the used article taken in trade.” Therefore, the state level tax in this
transaction is paid on the new tank and propane ([DOLLAR AMOUNT]), less the credit for the
empty tank taken in trade ([EMPTY TANK CREDIT]); in other words, the state level tax is paid
on the [DOLLAR AMOUNT MINUS EMPTY TANK CREDIT] sales price.
Consequently, the Taxpayer’s sale of Propane is subject to the Tennessee state sales and use tax
and exempt from the local option tax, regardless of whether a customer exchanges an empty
tank.

Joshua G. Tillman
Assistant General Counsel

28

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

August 28, 2014

See TENN. CODE ANN. § 67-6-102(79).

REVENUE RULING 14-08
APPENDIX A
ITEMS SOLD AT RETAIL
Item
Coupon Book

Hearing Aid Batteries
Propane (Without
Exchange of Empty
Tank)
Propane (With
Exchange of Empty
Tank)
Non-Alcoholic Beer
Non-Alcoholic
Cocktail Mixes

Description
The [COUPON BOOK] contains coupons, discounts, and special rates
on services. Among the deals offered are: coupons for discounts at
movie theaters; restaurants offering individual coupons entitling bearers
to dollar amounts deducted from their bill under certain conditions, e.g.
“one free entrée with purchase of second entrée of equal or greater
value,” or “$5 off on a $15 purchase”; coupons for fast food and
carryout, e.g. coffee offered at a discounted price with presentation of
coupon, or coupons entitling the bearer to free fast food items;
admissions discounts for children’s entertainment facilities and
amusement parks; discounts offered on hotel rates, airfare, automobile
rental, and museum admission; coupons for discounts on automobile
services, e.g. oil changes; and special rates offered on activation fees for
home security services.
Batteries for use in hearing aids.
Prefilled 20 lb. tank with propane for residential use. Assumed price for
the tank with no exchange is [DOLLAR AMOUNT].
Prefilled 20 lb. tank with propane for residential use. Customer presents
empty 20 lb. tank for exchange. Assumed price for the prefilled tank
with the exchange is [DOLLAR AMOUNT MINUS EMPTY TANK
CREDIT].
Contains less than 0.5% alcohol by volume. Ingredients not provided by
manufacturer.
Water, high fructose corn syrup and/or sugar, citric acid, natural and
artificial flavors, sodium citrate, sodium benzoate and potassium sorbate
(to preserve flavor), cellulose gum, polysorbate 60, gum Arabic,
glycerol abietate, red 40 and grape skin extract.

Item
Trail Mix with
Chocolate Covered
Peanuts

Trail Mix with Fruit
and Nuts

Trail Mix with
Sesame Sticks

Fiber Drink Mix

Food Thickener

Description
This product is labeled with an FDA Nutrition Facts panel which lists
the following ingredients: peanuts, raisins, chocolate covered peanuts
[milk chocolate (sugar, cocoa butter, milk chocolate, lactose, soy
lecithin--an emulsifier, vanillin--an artificial flavor), peanuts, sugar,
artificial color (includes red 40 lake), corn oil, corn syrup, gum arabic,
confectioner's glaze, carnauba wax, beeswax], almonds, chocolate candy
covered raisins [milk chocolate (sugar, cocoa butter, milk chocolate,
lactose, soy lecithin--an emulsifier, vanillin--an artificial flavor), raisins,
artificial color (includes blue 2 lake, red 40 lake, yellow 6 lake, yellow 5
lake), corn syrup, gum arabic, confectioner's glaze, carnauba wax,
beeswax], sugar, dried cranberries, peanut and/or cottonseed oil.
Contains: peanut, milk, soy, almond. Manufactured on equipment that
processes other tree nuts, sesame seeds, soy, wheat.
This product is labeled with an FDA Nutrition Facts panel which lists
the following ingredients: peanuts, raisins, dried bananas, sugar,
cashews, coconut oil, dried pineapple, dried papaya, dried cranberries,
citric acid, peanut and/or cottonseed oil, sea salt, natural flavor, sulfites
added to preserve color. Contains: peanut, cashew, sulfites.
Manufactured on equipment that processes other tree nuts.
This product is labeled with an FDA Nutrition Facts panel which lists
the following ingredients: almonds, honey roasted sesame sticks (wheat
flour, soybean oil, sesame seeds, bulgur wheat, maltodextrin, honey,
sugar, wheat starch, salt, xanthan gum, beet powder and turmeric
{vegetable colors}, soy lecithin, poppy seeds, milk), peanuts,
semisweet chocolate (sugar, chocolate, cocoa butter, milkfat, soy
lecithin, vanillin--an artificial flavor), sugar, walnuts, pecans, oil roasted
soynuts (soybeans, soybean oil), peanut and/or cottonseed oil, corn
syrup, honey, salt, artificial color (blue 2 lake, yellow 6 lake, yellow 5
lake, red 40 lake), gum arabic, confectioner's glaze, carnauba wax,
beeswax, xanthan gum. Contains: almond, wheat, sesame seed, soy,
poppy seed, milk, peanut, walnut, pecan. Manufactured on equipment
that processes other tree nuts.
Adds a trivial amount of cholesterol.
This product is labeled with an FDA Nutrition Facts panel which lists
the following ingredients: wheat dextrin (soluble fiber), citric acid,
maltodextrin, aspartame, natural flavors, potassium citrate,
acesulfame potassium, tricalcium phosphate, calcium silicate, gum
Arabic, magnesium oxide, titanium dioxide, FD&C red 40.
*Phenylketonurics: Contains phenylalanine.
This product is labeled with an FDA Nutrition Facts panel which lists
the following ingredients: modified corn starch and maltodextrin.

Item

Description

Oral Electrolyte
This product has no FDA Drug Facts panel, Supplement Facts panel, or
Replacement Solution Nutrition Facts panel, but contains the following ingredients: water,
(Flavored)
Dextrose. Less than 2% of the Following: Potassium Citrate, Sodium
Chloride, Sodium Citrate, Citric Acid, and Zinc Gluconate.
[BRAND NAME SOLUTION] provides (per liter): Osmolality,
mOsm/kg H2O: 250; Sodium, mEq: 45; Potassium, mEq: 20; Chloride,
mEq: 35; Zinc, mg: 7.8; Dextrose, g: 25; Calories: 100.
Oral Electrolyte
This product has no FDA Drug Facts panel, Supplement Facts panel, or
Replacement Solution Nutrition Facts panel, but contains the following ingredients: water,
(Unflavored)
Dextrose. Less than 2% of the Following: Citric Acid, Potassium
Citrate, Sodium Chloride, Artificial Flavor, Sodium Citrate, Sucralose,
Acesulfame Potassium, Zinc Gluconate, Red 40, and Blue 1.
[BRAND NAME SOLUTION] provides (per liter): Osmolality,
mOsm/kg H2O: 270; Sodium, mEq: 45; Potassium, mEq: 20; Chloride,
mg: 35; Zinc, mg: 7.8; Dextrose, g: 25; Calories: 100.
Oral Electrolyte
This product has no FDA Drug Facts panel, Supplement Facts panel, or
Replacement Solution Nutrition Facts panel, but contains the following ingredients: water,
(Frozen Sticks)
Dextrose. Less than 2% of the Following: Citric Acid, Sodium Chloride,
Sodium Carboxymethylcellulose, Potassium Citrate, Potassium Sorbate,
Sodium Benzoate, Sucralose, Acesulfame Potassium, and Natural &
Artificial Fruit Flavors*,†,‡,§.
*
Grape also contains Natural and Artificial Grape Flavor, Red 40 and
Blue 1.
†
Cherry also contains Natural and Artificial Cherry Flavor and Red 40.
‡
Orange also contains Natural and Artificial Orange Flavor, Yellow 6
and Red 40.
§
Blue Raspberry also contains Natural and Artificial Blue Raspberry
Flavor and Blue 1.
[BRAND NAME FROZEN STICKS] provide (per liter): Sodium,
mEq: 45; Potassium, mEq: 20; Chloride, mEq: 35; Dextrose, g: 25;
Calories: 100.

Item
Oral Electrolyte
Replacement Powder

Distilled Water With
Electrolytes
Glucose Tablets

Description
This product has no FDA Drug Facts panel, Supplement Facts panel, or
Nutrition Facts panel, but contains the following ingredients: Fruit
Punch Flavor (Anhydrous Dextrose, Citric Acid, Malic Acid, Potassium
Citrate, Salt, Sodium Citrate; Less than 2% of: Artificial Flavor,
Sucralose, Acesulfame Potassium, Red 40), Grape Flavor (Anhydrous
Dextrose, Citric Acid, Malic Acid, Potassium Citrate, Salt, Sodium
Citrate; Less than 2% of: Natural & Artificial Flavors, Sucralose,
Acesulfame Potassium, Red 40, Blue 1), Apple Flavor (Anhydrous
Dextrose, Citric Acid, Malic Acid, Potassium Citrate, Salt, Sodium
Citrate; Less than 2% of: Artificial Flavor, Caramel Color, Sucralose,
Acesulfame Potassium), and Strawberry Flavor (Anhydrous Dextrose,
Citric Acid, Malic Acid, Potassium Citrate, Salt, Sodium Citrate,
Natural Flavor; Less than 2% of: Sucralose, Acesulfame Potassium, Red
40, Blue 1).
[BRAND NAME] powder packs provide (per 8.5 g pack / 8 fl oz
reconstituted with water): Sodium, mEq: 10.6; Potassium, mEq: 4.7;
Chloride, mEq: 8.3; Dextrose, g: 5.7; Calories: 23.
This product is labeled with an FDA Nutrition Facts panel which lists
the following ingredients: vapor-distilled water electrolytes (magnesium
chloride hexahydrate, potassium bicarbonate, calcium chloride).
This product is labeled with an FDA Nutrition Facts panel which lists
the following ingredients: dextrose (d-glucose), cellulose, citric acid,
magnesium stearate, natural & artificial grape flavor, ascorbic acid,
fd&c red #40, fd&c blue #2.