Attorney General's Opinion

Attorney General, Richard Blumenthal

November 22, 2004

The Honorable Kevin B. Sullivan
Lieutenant Governor
State Capitol
Room 304
Hartford, CT 06106

Dear Lieutenant Governor Sullivan:

You have asked for an opinion as to the possible overcollection of sales tax on certain food items by supermarket vendors and the receipt of such overcollected taxes by the Department of Revenue Services ("DRS"). Specifically, you have asked for an opinion as to two questions: (1) Is DRS obligated to inform the retailer of its miscollection of taxes? and (2) Is the State obligated to disgorge the overtaxation received and is the retailer obligated to disgorge to consumers the taxation collected? The answers to your questions are in the affirmative: First, DRS is obligated to inform any retailer that it is miscollecting taxes and require retailers to collect taxes only as the law directs. Second, DRS is specifically authorized to refund the overtaxation collected either directly to the consumer or to the retailer, who must refund the overtaxation to the consumer.

The issue arises because supermarkets have apparently illegally charged consumers sales taxes on items that are exempt. Tax treatment of food items depends on the circumstances of their sale. Under applicable tax statutes, food products for human consumption are exempt from the sales tax. Conn. Gen. Stat. § 12-412(13). Expressly excluded from this exemption are "meals sold by an eating establishment or caterer." Id. "Meals" are defined as "food products which are furnished, prepared or served in such a form and in such proportions that they are ready for immediate consumption," and include "food products which are sold on a 'take out' or 'to go' basis and which are actually packaged or wrapped." Id. "Eating establishment" is defined as "a place where meals are sold and includes a restaurant, cafeteria, grinder shop, pizzeria, drive-in, fast food outlet, ice cream truck, hot dog cart, refreshment stand, sandwich shop, private or social club, cocktail lounge, tavern, diner, snack bar, or hotel or boarding house which furnishes both lodging and meals to its guests." Id. Thus, whether food is taxable or not depends on the manner in which it is "furnished, prepared and served" and whether it was purchased in an "eating establishment." As you note, confusion has arisen among both retailers and consumers regarding the taxability of certain prepared food items at supermarkets.

DRS has issued a Policy Statement addressing the sale of prepared food products at supermarkets. Policy Statement PS 2002(2), among other things, attempts to clarify the application of the sales tax to food products that might qualify as "meals" sold by supermarkets. The Policy Statement states that "[s]upermarkets are not generally sellers of meals." However, certain areas of some supermarkets may be considered an "eating establishment," such as a snack or coffee bar, or food court. There are, therefore, instances when prepared food products sold by supermarkets qualify as "meals" under the definition of § 12-412(13), subjecting such food to the sales tax.

The Policy Statement identifies examples of items that would be subject to the sales tax, including (a) "sales of sandwiches, grinders, coffee, or tea prepared in a supermarket at a delicatessen counter or elsewhere for takeout"; and (b) "sales of meals in areas of a supermarket where food is intended to be consumed in the supermarket, such as at snack bars or food courts . . . even if taken off the premises by the purchaser."

According to the DRS Policy Statement, except for certain items such as sandwiches or coffee that are always deemed by DRS "for takeout" (and, therefore, always subject to the sales tax), whether the sale of the prepared meal is taxable depends primarily on whether the food was paid for in an area of a supermarket designated for the consumption of food. If a store has such a designated area, only prepared meals sold in that area are taxable; prepared meals obtained anywhere in the supermarket, including those obtained in areas designated for food consumption, but paid for in the regular checkout line, are not taxable.

DRS has authority to conduct, and in fact has conducted, audits of supermarkets with regard to the collection of sales taxes. Conn. Gen. Stat. § 12-426(5). The statutory purpose of DRS's audit authority is "to verify the accuracy" of sales tax returns. Id. To fulfill this purpose, it is implicit that the results of an audit, in particular a finding that a tax is being improperly or unlawfully collected, must be reported to the person making the return. See Doe v. Marselle, 236 Conn. 845, 851, 675 A.2d 835 (1996) (statute should be interpreted to further its legislative purposes). Therefore, although the Commissioner has a certain degree of inherent discretion in determining when and what kind of action should be taken with regard to any tax dispute, at a minimum an audit that finds a supermarket is overcollecting sales tax must include a communication that it is improperly collecting the sales tax. The Commissioner must also direct any supermarket that is miscollecting sales taxes to collect such taxes only as the law directs. We understand that the Department already does this as its current practice and policy. As will be discussed herein, DRS should also notify the supermarket of the procedures for making claims for refunds on behalf of customers and the requirement that the supermarket return such refunds to its customers.

The Commissioner of DRS has the specific statutory authority to provide a refund of any tax that has been erroneously or illegally collected. Conn. Gen. Stat. §§12-39s, 12-425. Because in the case of the sales tax the actual taxpayer is the consumer, refunds must ultimately be directed to the consumer and not left with the retailer. DRS currently has in place a process by which consumers can obtain a refund of overcollected sales or use taxes. Section 12-425 of the General Statutes requires that a claim for a refund must be in writing, stating the specific grounds for the claim, and must be made within three years from the last day of the month next succeeding for which the overpayment was made. Conn. Gen. Stat. § 12-425(1), (3).

DRS Policy Statement 98(5) addresses the sales tax refund process. Under this Policy Statement, DRS will accept refund claims from either the retailer or the consumer. For refund claims filed by the retailer, the claim must be submitted in writing with proof that the sales tax was collected and remitted. The retailer must submit amended sales and use tax returns and provide proof that the sales were not subject to sales or use tax. If DRS concludes that a refund should be made, the retailer must provide proof that the tax has been or will be refunded or credited to the consumer.

For each refund claim by a purchaser, Policy Statement 98(5) requires a written refund claim including proof, such as a receipt, that the customer paid the tax to the retailer and that the purchases were not properly taxable. The purchaser must also submit a certification, to be completed by the retailer on a form provided by DRS, that the retailer collected and remitted the tax and that the retailer disclaims any interest in the refund and assigns the right to the refund to the purchaser.

As is evident from its description, the consumer sales tax refund process established by Policy Statement 98(5) may be unduly burdensome for individual consumers making grocery purchases who are entitled to recovery of illegal sales taxes that may have been charged. The purchase of groceries typically involves repeated purchases of low cost items over a period of time. Under such circumstances, the requirement of receipts and retailer certificates may prove daunting for consumers.

This policy should be streamlined and simplified to ensure that consumers who were wrongly taxed on supermarket purchases have the ability to obtain the refunds they deserve, while at the same time ensuring that only valid claims are honored.

A suggested procedure would be to accept sworn statements from consumers claiming refunds and indicating stores, dates, prices and perhaps other details concerning items purchased and wrongfully taxed. Such information commonly could be corroborated by store records maintained through store discount cards for most purchases.

We note that most large supermarkets keep computerized records of customers' purchases, based on store discount cards provided to customers for use in purchasing goods. The use of such records may be a convenient basis for supporting refund claims for those customers who have such cards. The use of such records may also provide a convenient basis for supermarkets to make refund claims on behalf of all of their customers, enabling those stores to immediately return the over-collected taxes to the consumers who paid them.

Most importantly, illegal collection of sales taxes by supermarkets must stop. Stores that have over-collected sales taxes must also be required to notify customers of the sales tax over-collections and describe to consumers their refund options. If made to the retailer, the refund must be paid immediately to the consumer. DRS refund policies for excess supermarket sales taxes, to fulfill their public purpose, should be streamlined, simplified and made more consumer friendly.

I trust that this addresses your questions.

Very truly yours,


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