A. Items Sold in Vending Machines

All food sold through a vending machine is subject to sales tax regardless of the type of food sold. The fact that the item qualifies as exempt food if sold in another manner does not make the purchase exempt if sold through a vending machine.

B. Candy

Candy is defined as preparations 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. The fact that these preparations contain ingredients that, if purchased separately, are considered exempt does not exempt these preparations. The term does not include any preparation that contains flour listed on the label or any preparation that requires refrigeration. Based on this definition, many items commonly considered to be candy, including many candy bars, are not classified as "candy" for Indiana sales tax purposes (for examples, please see "Appendix A").

Baking chocolate and similar products that are intended for use in cooking will be considered exempt food within the meaning of this information bulletin, unless they are in the form of bars, drops, or pieces and are sweetened.

C. Soft Drinks

Soft drinks are defined as nonalcoholic beverages that contain natural or artificial sweeteners. The term does not include beverages that contain milk or milk products, soy, rice, or similar milk substitutes or greater than 50 percent vegetable or fruit juice by volume. Additionally, beverages that are advertised as being greater than 50 percent juice but are made from concentrate through a water extraction method, such as prune juice, would be taxable if they contain natural or artificial sweeteners. Further, frozen or powdered drink mixes are not sold in a liquid beverage form, and therefore would not be considered a soft drink even if they contained sweeteners.

D. Dietary Supplements

Sales of dietary supplements are subject to Indiana sales tax. The term dietary supplements means any product other than tobacco that:

(1) Is intended to supplement the diet;

(2) Contains one or more of the following ingredients:

(a) Vitamins

(b) Minerals

(c) Herbs or other botanicals

(d) Amino acids

(e) A dietary substance for use by humans to increase the total dietary intake

(f) Concentrates, metabolites, constituents, extracts, or a combination of any of the above ingredients;

(3) Is intended for ingestion in tablet, capsule, powder, softgel, gelcap, or liquid form, or if not intended for ingestion in the above form, is not represented as a conventional food and is not represented for use as a sole item of a meal or of the diet;

(4) Is required to be labeled as a dietary supplement, identifiable by the "Supplemental Facts" box found on the label and as required under 21 CFR 101.36.

Sales of food prescribed as medically necessary by a physician licensed to practice medicine in Indiana are exempt from the sales tax if dispensed by a registered pharmacist or sold by a licensed physician.

E. Prepared Food

Prepared food is taxable. Prepared food means the following:

(1) All food items sold in a heated state or heated by the seller and ready to eat without further cooking by the purchaser. Providing a microwave or toaster for customer usage to eat frozen or refrigerated items not previously heated by the seller would not make the items taxable.

(2) All food items sold with eating utensils provided by the seller. Eating utensils includes plates, knives, forks, spoons, glasses, cups, napkins, or straws (a plate does not include a container or packaging used to transport the food). Except as provided below, food shall be considered to be sold with eating utensils provided by the seller when utensils are given to the purchaser or made available for self-service by the purchaser on the seller's premises. The taxability of food sold by a restaurant or a combination business is determined as follows:

(a) A restaurant is a business that sells prepared food such as meals, sandwiches, or other food for consumption on or off the premises and which provides utensils. A business is considered a restaurant if seventy five percent (75%) or more of the business's sales are of prepared food, as determined by the formula in "Appendix B."

Because utensils are provided by a restaurant, this subjects all food items ready for immediate consumption on or off the premises sold by the restaurant to tax, regardless of the portion size. This includes self-service food such as salad bars or drink islands, bakery items, and other items normally considered non-taxable, including bottled water, fruit, and potato chips. However, food sold without eating utensils provided by the seller that ordinarily requires cooking (as opposed to just reheating) by the consumer prior to consumption is excluded from prepared food, and is, therefore, exempt (e.g., prepackaged baking mixes).

(b) A combination business is a business that has both an area that is considered a restaurant and an area that is considered a store, and the business's sales of prepared food are less than seventy five percent (75%) of the business's overall sales (i.e., grocery stores with a deli or cafeteria; convenience stores; farmer's markets; restaurants with a gift store or grocery), as determined by the formula in "Appendix B." Sales of prepared food by a combination business are taxable. However, otherwise exempt food sold by a combination business, including bakery items and items ready for consumption at the time of sale, are only taxable if utensils are handed to the customer. This includes utensils that are placed by the seller in a bag or other container that is handed to the customer.

(3) All food items where two or more food ingredients are mixed or combined by the seller and then sold as a single food item. However, items in this category are not taxable if:

(a) The item is both sold in an unheated state by weight or volume as a single item and is sold without eating utensils (e.g., potato salad);

(b) The item sold represents food that is only cut, repackaged, or pasteurized by the seller (e.g., vegetable trays);

(c) The item sold contains raw animal foods that require cooking (e.g. breaded or seasoned raw fish or meat); or

(d) The item ordinarily requires additional cooking (e.g., take and bake pizza).

Prepared food does not include bakery items (including bagels, bars, biscuits, bread, buns, cakes, cookies, croissants, Danishes, donuts, muffins, pastries, pies, rolls, tarts, tortes, and tortillas) and food items sold by a seller whose proper primary NAICS classification is 311 food manufacturing (except subsector 3118, bakeries), even though they are items in which two or more food ingredients are mixed or combined by the seller and then sold as a single food item. These items are not taxable unless they are:

(a) Sold through a vending machine;

(b) Sold with eating utensils provided by the seller; or

(c) Sold in a heated state.

Therefore, if a bakery provides utensils, the bakery items it sells would be subject to sales tax depending on whether the bakery qualifies as a restaurant or combination business using the test outlined in "Appendix B."

F. Bundled and Unitary Transactions

When a distinct, identifiable taxable item is sold with a distinct, identifiable non-taxable food item for one non-itemized price, it is a bundled transaction (e.g., a snack product that contains crackers, cheese, and candy, separated in a single container, and sold as one item). If the food item is 50 percent or less of the total purchase price, the entire purchase amount is subject to sales tax. The determination must be made on the basis of either individual item purchase prices or individual item sale prices. In the case of a unitary transaction, if multiple items are purchased under one order, as long as such items are separately priced and charged on the receipt, only the amount charged for the taxable item is subject to sales tax.

DIN: 20160427-IR-045160160NRA

Composed: May 18,2024 12:43:19PM EDT

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