Information Release

ST 2010-01 - Sales and Use Tax: Food Service - Equipment and Supplies Used in the Food Service Industry – Issued August 2010 

The purpose of this information release is to provide guidance to the food service industry as to the application of Ohio sales and use tax to their equipment and supply purchases. As a general rule, all purchases of tangible personal property made in Ohio are subject to Ohio sales tax and the storage, use or consumption of tangible personal property in Ohio is subject to Ohio use tax. However, there are several sales tax exemptions that can apply to purchases by vendors in the food service industry. (While the remainder of this release will address potential exemptions in terms of sales tax, all exemptions would apply equally to use tax.) This information release will describe the various exemptions and provide a list of commonly purchased equipment and supplies indicating whether those items would be taxable or exempt. 

General Exemptions

Ohio sales tax applies to all retail sales of tangible personal property unless otherwise exempted. There are several exemptions that can apply to purchases by vendors in the food service industry that would also be applicable to other types of vendors.

Resale - Ohio Revised Code (“R.C.”) section 5739.01(E) defines a “retail sale” as, “all sales except those in which the purpose of the consumer is to resell the thing transferred … in the form in which the same is, or is to be, received by the person.”  Examples of this in the food service context would be tableware, cutlery and table linens temporarily transferred to the customer as part of the sale of a meal.  Also, purchases of items like paper napkins, plastic spoons and forks, and drinking straws provided to customers that purchase food or beverages would be exempt from sales tax under the resale exemption.

Incorporation into a Product for Sale – R.C. 5739.02(B)(42)(a) provides an exemption for items that a vendor intends to “incorporate … as a material or a part into tangible personal property to be produced for sale by manufacturing, assembling, processing, or refining.” This is essentially an exemption for raw materials.  In the food service industry, this exemption would apply to purchases of such things as drink mixes or soft drink syrup as well as the basic food items to be prepared and sold to customers.

Manufacturing – R.C. 5739.02(B)(42)(g) provides an exemption for items that the vendor will use “primarily in a manufacturing operation to produce tangible personal property for sale.” R.C. 5739.01(S) defines a “manufacturing operation” as one “in which materials are changed, converted, or transformed into a different state or form from which they previously existed.” While this would include much food preparation equipment, there is a specific exemption for such equipment that will be discussed below. However, food service operations often sell soft drinks or alcoholic beverages which are not included within the definition of “food” for sales and use tax purposes (see R.C. 5739.01(EEE)). Equipment used to process such items, such as bar blenders and shakers, would qualify for the manufacturing exemption.

Packaging – R.C. 5739.02(B)(15) provides an exemption for packages purchased by a person making retail sales.  In a food service operation, this would include such items as paper bags and cups used to package carryout purchases and “doggie bags” for customers to take home leftover food.

Items Used Directly in Making Retail Sales – R.C. 5739.02(B)(35)(a) provides an exemption for, “Sales where the purpose of the consumer is to use or consume the things transferred in making retail sales and consisting of newspaper inserts, catalogues, coupons, flyers, gift certificates, or other advertising material which prices and describes tangible personal property offered for retail sale.” Pursuant to R.C. 5739.01(O) only that printed matter which is “distributed” to the customer qualifies for this exemption. The item in question must also both describe and price the items offered for sale.  Examples of items entitled to this exemption would be carryout menus.

Specific Food Service Exemptions

R.C. 5739.02(B)(27) provides an exemption exclusively for the food service industry. That section provides exemption for:

(27) Sales to persons licensed to conduct a food service operation pursuant to section 3717.43 of the Revised Code, of tangible personal property primarily used directly for the following:

(a) To prepare food for human consumption for sale;

(b) To preserve food that has been or will be prepared for human consumption for sale by the food service operator, not including tangible personal property used to display food for selection by the consumer;

(c) To clean tangible personal property used to prepare or serve food for human consumption for sale.

Subdivision (a) of this section would exempt items like stoves, ovens, cookware and utensils.  Subdivision (b) would provide exemption for items like kitchen coolers and freezers. Note that items like coolers in an ice cream store that display the ice cream for customers to select would not qualify for exemption. Subdivision (c) would exempt items like dishwashers and certain cleaning supplies for cleaning items used to prepare and serve food (not including alcoholic beverages or soft drinks).

The attached_list (in PDF format) is to be used as a reference guide for taxpayers in the food service industry and their suppliers. It is intended to be illustrative and not to include all items that may be purchased for use in a food service operation. The exemptions available to persons in the food service industry are dependent on the actual use of the item in question. The tax determinations in the attached list assume the items in question are used in the manner that is usual to the industry. For example, a kitchen cooler used primarily to hold non-food items, such as soft drinks, would not be entitled to exemption.  If an item is used in both exempt and taxable manners, the vendor’s primary use of the item would control its taxability.

If you have any questions regarding this information release, please contact our Taxpayer Service Center at 1-888-405-4039, or e-mail us through our Web site: tax.ohio.gov.

 

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