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Bulletin #36

Taxpayers Information Service
Drink Formula - Taxable Meals

This Bulletin is obsoleted by AN 94(6)

Effective July 1, 1986, sales of meals under $2 were exempted from the sales tax. At that time, alcoholic, nonalcoholic beverages such as soda, carbonated fruit drinks, carbonated water, nonalcoholic beer and wine did not qualify for the meals under $2 exemption because they are not classified as food products. Alcoholic and nonalcoholic carbonated beverages were always taxable when served with food.

Items such as milk, milk shakes, fruit juices, fruit drinks, coffee and tea are included in the meals under $2 exemption because they are classified as food products.

Example 1 Example 2
Sandwich <align="right">$1.25</align="right"> Coffee $ .75
Milk .65 No other purchase -
Total $1.90 Total $ .75
No Tax - 0 - No Tax - 0 -

Effective July 1, 1987 nonalcoholic beverages which are not food products are included in the meals under $2 exemption when they are sold together with food on the entire price of the meal and the beverage is less than two dollars.

Example 3
Sandwich $1.20
Soda .75
Total $1.95
No Tax - 0 -

Alcoholic beverages remain taxable when they are served alone or with food.

Example 4
Beer $ .75
Sandwich 1.20
Total $1.95
Taxable $ .75

Nonalcoholic beverages which are not food products such as soda are taxable when they are sold alone.

Example 5
Soda $ .75
No other purchase -
Total $ .75
Taxable $ .75

A nonalcoholic carbonated beverage is taxable when sold together with a beverage which is classified as a food product such as milk.

Example 6
Soda $ .75
Milk .60
Total $1.35
Taxable $ .75

Candy is not classified as a food product and is always taxable. The sale of a carbonated beverage with a candy bar is taxable.

Example 7
1 Candy Bar $ .50
1 Soda .75
Total $1.25
Taxable $1.25

Drink Formula

The basic drink formula states that the number of drinks sold can be divided into the total sales price to determine the taxability of the meals sold.

The drink formula has been modified and approved for take-out orders and fast food restaurants when the number of meals cannot be determined and the nature of the transaction does not allow for separate itemization of each meal sold.

(A) When the number of food items sold equals or exceeds the number of drinks sold, the total cost of the food and drinks can be divided by the number of drinks to determine the taxability of the meal.

Example 8
- Total
4 Hot Dogs $3.60
2 Sodas 1.40
1 Milk .50
Total $5.50
$5.50 - 3 drinks = $1.83 per meal -
No Tax - 0 -

(B) When several food items are purchased without beverages, the total cost is taxable if the amount is two dollars or more.

Example 9
- Total
4 Hamburgers at $ .90 each $3.60
3 French Fries at $ .55 each 1.65
Total $5.25
Taxable $5.25

(C) An individual food item which sells for more than $1.99 is always taxable although the average cost of the meal may be less than $2.00.

Example 10
- Total
1 Superburger $2.10
2 Hot Dogs at $1.10 each 2.20
1 Soda .60
2 Milks at $ .50 each 1.00
Total $5.90
$5.90 - 3 drinks = $1.97 per meal -
Taxable Total $2.10

(The Superburger is taxable)

(D) When several beverages are purchased without food items, the drinks classified as food products are not taxable if their individual cost is less than $2.00 and the other beverages are taxable regardless of their sales price.

Example 11
1 Milk $ .45
1 Coffee .50
1 Soda .75
1 Beer .95
Total $2.65
Taxable $1.70

(The soda and beer are taxable)

(E) If an order includes more drinks than food items, each drink is assigned to a food item. Start with the lowest price carbonated beverage and work up through the highest price carbonated beverage. Then use drinks classified as food products such as milk, coffee and fruit drinks.

Example 12
- Meal #1 Meal #2 Meal Total Other Taxable Total
1 Burger $1.00 - $1.00 - $1.00
1 Hot Dog - $ .90 .90 - .90
3 Sodas .80 .80 $1.60 $ .80 2.40
Total $1.80 $1.70 $3.50 $ .80 $4.30

 

Average Meal Cost $3.50 - 2 drinks = $1.75 per meal

Taxable Total $2.40

(The remaining soda is taxable)

Example 13
- Meal #1 Meal #2 Meal #3 Meal Total Other Nontaxable Total
2 Burgers $1.00 $1.00 - $2.00 - $2.00
1 French Fries - - $ .80 .80 - .80
2 Small Sodas .45 .45 - .90 - .90
1 Large Soda - - .65 .65 - .65
1 Milk _______ _______ _______ _______ $ .45 .45
Total $1.45 $1.45 $1.45 $4.35 $ .45 $4.80

Average Meal Cost $4.35 - 3 drinks = $1.45 per meal

No Tax - 0 -

(The remaining milk is not taxable)