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Understand Sales Tax for Food & Beverage
Is food taxable in Illinois?
byApril 29, 2020
Every US state makes their own rules and laws around the taxability of certain products. Many states, Illinois included, treat “necessities” like groceries a little differently than other items when it comes to how much sales tax a business should charge.
This post will explain food taxability in Illinois.
Are groceries taxable in Illinois?
In Illinois, food intended to be “consumed off the premises where it is sold” is taxable at a reduced state rate of just 1%.
However, the state can get strict when it comes to what is considered “consumed off the premises where it is sold.” For more, keep reading the “Are meals taxable in Illinois?” section.
Candy, no matter where it is consumed, is always taxed at the high rate. But, interestingly, products that include flour are not candy. So a candy bar without flour would be taxable at the high rate, but a sweet treat made with flour, such as a cake, would (generally) be considered a grocery item and taxed at the low rate as long as it isn’t intended for consumption on the premises.
Are meals taxable in Illinois?
Meals, or prepared food, are taxable at the full rate in Illinois. The state provides some handy guidance on what is considered “prepared food” on their website.
But to sum it up, if a meal is served ready to eat, then it is taxable at the full rate.
Let’s look at the example of a prepared meal picked up “to go” at a restaurant. That meal is still considered ready to eat and taxed at the full rate. “Hot” food is also always considered prepared food and taxable at the full rate.
However, if a location can show that the areas where “prepared food for immediate consumption” and “food not for immediate consumption” are sold are physically separated from one another, then the location can tax the food not for immediate consumption at the lower rate.
That’s a little jargony, so let’s look at an example from the Illinois tax code:
A grocery store also has an indoor cafeteria. Prepared food made to order for the customer and ready to eat (sandwiches, pizza, etc.) are taxed at the high 6.25% rate. But, prepared sandwiches for sale that have not been prepared for a specific customer (i.e. sandwiches that sit in a refrigerated case and wait for someone to choose them) are taxed at the low 1% rate.
And, of course, the grocery items found on the regular shelves of the grocery store are taxed at the low 1% rate.
Don’t worry if you are finding all of this a little confusing. Illinois Administrative Code, Title 86, Section 130.310 provides several examples to help you determine if the food you sell is taxable at the low 1% rate or the higher 6.25% Illinois rate. Find examples relating to bakeries, delis, ice cream stores, and more.
Are beverages taxable in Illinois?
As in most states, beverage taxability depends on the beverage. Soft drinks, energy drinks, sweetened tea and coffee beverages are taxed at the 6.25% rate. Vegetable or fruit juice containing less than 50% vegetable or fruit ingredients is also considered taxable.
However, drinks like plain water, coffee, and tea are generally considered grocery items and non-taxable.
Fortunately, the state of Illinois realizes that this gets a little complicated and has provided many examples of taxable and non-taxable beverages in Illinois Administrative Code, Title 86, Section 130.310.
How to Always Collect the Correct Amount of Illinois Sales Tax
Do you sell groceries, meals or beverages? Are you required to collect sales tax in Illinois? Then this may sound like a huge headache.
That’s where TaxJar can help.
With the TaxJar API, you can be sure you’re collecting the right amount of sales tax on every transaction. Our product tax codes ensure you do collect sales tax on that soft drink but don’t collect sales tax on that plain coffee drink.
Not to mention, most eCommerce businesses have nexus in multiple states. For example, groceries are taxable in some states, but non-taxable in others. Or, like Illinois, they are taxable at a reduced rate. With TaxJar, you’ll collect the right amount of sales tax from every customer, in every state, every time.
Further food and meal taxability resources:
- Sales Tax by State: Are grocery items taxable?
- Sales Tax by State: To-Go Restaurant Orders
- Is the food I sell on my food truck taxable?
- Illinois Sales Tax Guide for Businesses
Ready to automate sales tax collection, reporting and filing? Click here for more on how TaxJar can take the headache out of sales tax in your food & beverage business.
Your food taxability checklist
Food and beverage taxability is complicated, and collecting and filing correctly can be difficult. Use this checklist to make sure you’re compliant.Download the checklist