STATE OF ARIZONA Department of Revenue

Transcription

1 STATE OF ARIZONA Department of Revenue Douglas A. Ducey Governor David Briant Director Mr. [Redacted] 3850 NE Three Mile Lane McMinnville, OR [Redacted] Dear Mr. [Redacted]: The following information is provided in response to your March 21, , concerning the application of the Arizona transaction privilege tax to the following question. I have a question about the taxability of frozen sandwiches, which are addressed in publication no The publication states that hot, cold and frozen sandwiches are taxable. My question relates to the scope of the Department s position on frozen sandwiches. My company has been treating items like hot pockets and frozen burritos as taxable frozen sandwiches. Is our position correct? Brief Answer: Cold sandwiches as referenced in Arizona Revised Statutes (A.R.S.) (4)(b) do not include frozen sandwiches. Accordingly, food for consumption on the premises as defined in A.R.S (4) does not include frozen sandwiches. On April 14, 1999 the Department s Uniformity Committee determined that cold sandwiches as defined in Arizona Administrative Code (A.A.C.) R (8)(a)(ii) do not include frozen sandwiches. The Department s intent to amend (A.A.C.) R (8)(a)(ii) to remove the reference to frozen sandwiches has, however, been precluded since that time by the succeeding administration Governor Executive Orders prohibiting rule making by the Department. The Department s new and amended food rules are still pending review and approval. Consequently, the revision of Pub 575 is pending. The Department, however, is not enforcing the current existing rule regarding frozen sandwiches West Monroe Street Mail Code 1300, Phoenix AZ

2 Page 2 Background Information: The Arizona transaction privilege tax is a tax imposed on the privilege of conducting business in the State of Arizona. This tax is levied on the seller, not the purchaser. The seller may pass the burden of the tax on to the purchaser; however, the seller is ultimately liable to Arizona for the tax. The Arizona transaction privilege tax is imposed under various business classifications including retail sales of tangible personal property. County excise taxes "piggyback" the imposition of the state's transaction privilege tax. All sales that are subject to the transaction privilege tax are also subject to applicable county excise taxes. Retail Classification A.R.S imposes the transaction privilege tax under the retail classification. The retail classification is comprised of the business of selling tangible personal property at retail. The tax base for the retail classification is the gross proceeds of sales or gross income derived from the business. All sales of tangible personal property are subject to the transaction privilege tax under the retail classification unless specifically deducted or excluded by statute. A.R.S (A)(15) provides that the tax does not apply to sales of food, as provided in and subject to the conditions of Article 3 and A.R.S Under Article 3, A.R.S (A)(3) exempts the sale of food by a qualifying retailer who sells food and does not provide or make available any facilities for the consumption of food on the premises. "Food" is defined by A.R.S to mean any food item intended for human consumption which is intended for home consumption as defined by rules and regulations adopted by the Department. The Existing Food Rules The Department previously issued A.A.C.R that gives further definition to the term "food". In accordance with this rule, "food" means items intended for human consumption. Food is deemed to be intended for human consumption when its intended or ordinary use is as a food for human consumption or is an ingredient used in preparing food for human consumption. A.A.C. R (15)(c) provides examples of items that the Department will consider as tax exempt food. These items include: bread and flour products vegetables and vegetable products candy and confectionery

3 Page 3 sugar, sugar products and substitutes cereal and cereal products butter, oleomargarine, shortening and cooking oils cocoa and cocoa products coffee and coffee substitutes milk and milk products eggs and egg products tea meat and meat products spices, condiments, extracts and food colorings fish and fish products frozen foods soft drinks and soda (including bottles on which a deposit is required to be paid) fruit and fruit products packaged ice cream products dietary substitutes ice cubes and bottled water including carbonated and mineral water purchases of seed and plants for use in gardens to produce food items for personal consumption A.R.S (A) exempts the sale of food by any of the following: 1. A retailer who conducts an eligible grocery business. 2. A retailer who conducts a business whose primary business is not the sale of food but who sells food which is displayed, packaged and sold in a similar manner as an eligible grocery business. 3. A retailer who sells food and does not provide or make available any facilities for the consumption of food on the premises. 4. A retailer who conducts a delicatessen business either from a counter which is separate from the place and cash register where taxable sales are made or from a counter which has two cash registers which are used to record taxable and tax exempt sales or a retailer who conducts a delicatessen business and who uses a cash register which has at least two tax computing keys which are used to record taxable and tax exempt sales. 5. A retailer who is a street or sidewalk vendor and who uses a pushcart, mobile facility, motor vehicle or other such conveyance. 6. Vending machines and other types of automatic retailers. A.R.S (4) defines "food for consumption on the premises" as including: (a) Hot prepared food. (b) Hot or cold sandwiches. (c) Food served by an attendant to be eaten at tables, chairs, benches, booths, stools, counters and similar conveniences and within parking areas for the convenience of in-car consumption of food. (d) Food served with trays, glasses, dishes or other tableware. (e) Beverages sold in cups, glasses, or open containers. (f) Food sold by caterers. (g) Food sold within the premises of theaters, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, fairs, races, contests, games, athletic events, rodeos, billiard and pool parlors, bowling alleys, public dances, dance halls,

4 Page 4 boxing, wrestling and other matches and any business that charges admission, entrance or cover fees for exhibition, amusement or entertainment. (h) Any items contained in subdivisions (a) through (g) of this paragraph even though they are sold on a take-out or to go basis, and whether or not the item is packaged, is wrapped or is actually taken from the premises. A.A.C. R (9) specifically defines "food intended for human consumption as food other than food for consumption on the premises, which is usually intended to be consumed at home. A.A.C. R (8) defines food for consumption on the premises. 8. "Food for consumption on the premises" a. "Food for consumption on the premises" means the following: i. Hot prepared food, including products, items or ingredients of food which are prepared and sold or are intended to be sold in a heated condition. This also includes a combination of hot and cold food items or ingredients if a single price is charged by the retailer. ii. Hot or cold sandwiches including frozen sandwiches. 1 iii. Food served by an attendant to be eaten at tables, chairs, benches, booths, stools, counters and within parking areas (for in-car consumption). iv. Food served with trays, glasses, dishes or other tableware. Food which is generally selected by the customer from available displays and then taken by the customer to a checkout stand for payment is not considered to be served by the retailer. v. Beverages sold in cups, glasses or open containers. Beverages shall include items such as milk shakes and ice cream floats. vi. vii. Food sold by caterers. Food sold within the premises of theaters, exhibitions, fairs, amusement parks, bowling alleys, athletic events, and other shows or contests and any businesses which charge admission, entrance or cover fees for exhibition, amusement, entertainment or instruction. While food for consumption on the premises includes any food sold within the premises of certain businesses, including businesses that charge admission, entrance or cover fees for exhibition, amusement, entertainment or instruction, food for consumption on premises does not include sales of tax exempt food by a qualified retailer within the premises of a full time educational institution that charges tuition for a full course of studies. b. Any item enumerated in subparagraph (a) which is sold on a take-out or to-go basis is still considered to be food for consumption on the premises and therefore taxable. The rules, however, impose a presumption that food delivered by a retailer to an office or other business establishment is not considered to be food intended for home consumption. [See A.A.C. R (9).] I hope this information is of assistance to you. If you have any further questions, feel free to contact this office again. You may visit the Department of Revenue s website at for more information. The Department s website provides access links to 1 The Department is not enforcing the current existing rule regarding frozen sandwiches.

5 Page 5 Arizona Revised Statutes, the Arizona Administrative Code, Transaction Privilege Tax Rulings and Procedures, Private Taxpayer Rulings and tax rate tables referred to in this response. This is an information letter and not a private taxpayer ruling. The advice it contains is solely dependent upon the adequacy and accuracy of the information provided. Therefore, inadequate and/or inaccurate taxpayer information could result in the imposition of additional tax, interest and penalties. Conversely, if the taxpayer information is correct but the Department later determines that this advice is erroneous, any penalties and interest directly attributable to following this advice will be abated. Sincerely, LC Heugly Len Heugly Tax Analyst Tax Policy 18 ASK TAX POLICY FROZEN SANDWICH