Section 130.310  Food, Drugs, Medicines and Medical Appliances

 

a)         Food.  With respect to food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, soft drinks, candy and food that has been prepared for immediate consumption), the tax is imposed at the rate of 1%.  Food for human consumption that is to be consumed off the premises where it is sold includes all food sold through a vending machine, except soft drinks, candy, and food products that are dispensed hot from a vending machine, regardless of the location of the vending machine.  (Section 2-10 of the Act) Public Acts 96-34, 96-37 and 96-38 included changes to the definition of soft drinks and provided that candy is not considered "food for human consumption that is to be consumed off the premises where it is sold".  For further information on the definition and taxation of soft drinks, see subsection (d)(6).  For further information regarding the definition and taxation of candy, see subsection (d)(7).

 

b)         The manner in which food is taxed depends upon 2 distinct factors that must both be considered in determining if food is taxed at the high rate as "food prepared for immediate consumption" or the low rate as "food prepared for consumption off the premises where sold".

 

1)         The first factor is whether the retailer selling the food provides premises for consumption of food.  If so, a rebuttable presumption is created that all sales of food by that retailer are considered to be prepared for immediate consumption and subject to tax at the high rate.  As a result of this presumption, even bulk food could potentially be taxable at the high rate.  However, this presumption is rebutted if a retailer demonstrates that:

 

A)        the area for on-premises consumption is physically separated or otherwise distinguishable from the area where food not for immediate consumption is sold; and

 

B)        the retailer has a separate means of recording and accounting for collection of receipts from sales of both high and low rate foods.  For purposes of this subsection (b)(1)(B), the phrase "separate means of recording and accounting for collection of receipts" includes cash registers that separately identify high rate and low rate sales, separate cash registers, and any other methods by which the tax on high and low rate sales are recorded at the time of collection.

 

2)         The second factor is the nature of the food item being sold.  As provided in subsection (c), some foods, such as hot foods, are always considered to be "food prepared for immediate consumption", and thus subject to the high rate of tax. 

 

3)         Numerous examples applying these factors to different types of food and food retailers are provided in subsection (d)(4)(A)-(I). 

 

c)         Definitions

 

1)         "Food". Food is any solid, liquid, powder or item intended by the seller primarily for human internal consumption, whether simple, compound or mixed, including foods such as condiments, spices, seasonings, vitamins, bottled water and ice.

 

2)         "Food Prepared for Immediate Consumption".  Food prepared for immediate consumption means food that is prepared or made ready by a retailer to be eaten without substantial delay after the final stage of preparation by the retailer.

 

A)        Food prepared for immediate consumption includes, but is not limited to, the following:

 

i)          all hot foods, whether sold in a restaurant, delicatessen, grocery store, discount store, concession stand, bowling alley, vending machine or any other location.  At a grocery store, hot foods subject to the high rate of tax include, but are not limited to, pizza, soup, rotisserie or fried chicken and coffee; other examples of food prepared for immediate consumption include popcorn or nachos sold at a movie concession stand; hot dogs sold by a street vendor; and hot precooked meals sold to customers, such as a Thanksgiving dinner.  For purposes of this Section, "hot" means any temperature that is greater than room temperature;

 

ii)         sandwiches, either hot or cold, prepared by a retailer to the individual order of a customer;

 

iii)         salad, olive or sushi bars offered by a retailer at which individuals prepare their own salads (hot or cold);

 

iv)        all coffee, tea, cappuccino and other drinks prepared by a retailer for individual consumption, whether hot or cold, are subject to the high rate of tax;

 

v)         all food sold for consumption on the premises where sold.

 

B)        "Food prepared for immediate consumption" does not include:

 

i)          doughnuts, cookies, bagels or other bakery items  prepared by a retailer and sold either individually or in another quantity selected by the customer, provided they are for consumption off the premises where sold;

 

ii)         whole breads, pies and cakes prepared by a retailer, even when prepared to the individual order of a customer;

 

iii)         sandwiches that are prepared by a retailer and placed in a deli case or other storage unit;

 

iv)        cold salads, jellos, stuffed vegetables or fruits sold by weight or by quart, pint or other quantity by a retailer;

 

v)         cheese, fruit, vegetable or meat trays prepared by a retailer, either to the individual order of a customer or premade and set out for sale;

 

vi)        food items sold by a retailer that are not prepared or otherwise manufactured by that retailer, such as pre-packaged snacks or chips, unless these items will be consumed on the premises where sold (e.g., in a sandwich shop).  For grocers, such items include, but are not limited to, fruits, vegetables, meats, milk, canned goods and yogurt.  In addition, effective September 1, 2009, all sales of "candy", as defined in subsection (d)(7), are subject to the high rate of tax.

 

C)        The provisions of subsection (c)(2)(B) are subject to the rebuttable presumption described in subsection (d).  That is, the items listed in subsection (c)(2)(B) are taxable at the low rate only if the retailer had a separate means of recording and accounting for high and low rate sales, and the retailer provides no on-premises facilities for consumption of the food or, if the retailer does provide such facilities, they are physically separated or otherwise distinguishable from the area where food not for immediate consumption is sold.

 

3)         "Premises".  Premises is that area over which the retailer exercises control, whether by lease, contract, license or otherwise, and, in addition, the area in which facilities for eating are provided, including areas designated for, or devoted to, use in conjunction with the business engaged in by the vendor.  Vendor premises include eating areas provided by employers for employees and common or shared eating areas in shopping centers or public buildings if customers of food vendors adjacent to those areas are permitted to use them for consumption of food products. 

 

d)         Test to Determine Applicable Rate.  The rate at which food is taxable is determined as follows:

 

1)         If retailers provide seating or facilities for on-premises consumption of food, all food sales are presumed to be taxable at the high rate as "food prepared for immediate consumption".  However, this presumption can be rebutted by evidence that:

 

A)        the area for on-premises consumption is physically separated or otherwise distinguishable from the area where food not for immediate consumption is sold; and

 

B)        the retailer utilizes a means of recording and accounting for collection of receipts from the sales of food prepared for immediate consumption (high rate) and the sales of food that are not prepared for immediate consumption (low rate). 

 

2)         If a retailer does not provide seating or facilities for on-premises consumption of food,  then the low rate of tax will be applied to all food items except for "food prepared for immediate consumption by the retailer" as provided in subsection (b) and soft drinks, candy and alcoholic beverages.  However, in order for the low rate of tax to apply, retailers that sell both food prepared for immediate consumption and food for consumption off the premises where sold must utilize means of recording and accounting for collection of receipts from the sales of food prepared for immediate consumption (high rate) and the sales of food that are not prepared for immediate consumption (low rate).  If these receipts are not maintained, all sales will be presumed to be at the high rate of tax. 

 

3)         Illustration C is a decision tree to assist in making high rate/low rate determinations.

 

4)         Examples:

 

A)        Grocery Store – On-premises Facilities for Consumption of Food.  Provided that the requirements of subsection (d)(1) are met, examples of high rate items include, but are not limited to, hot foods (soup, pizza, rotisserie or fried chicken, stuffed potatoes, hot dogs); all sandwiches, either hot or cold, that are prepared to the individual order of a customer; salads prepared by customers at a salad/olive/sushi bar; and all food sold for consumption on the premises.  Also included are hot precooked meals sold to customers, such as a Thanksgiving dinner; however, if precooked meals are sold in an unheated state of preparation, they are considered to be low rate.  Meal packages sold by a grocer (e.g., 2 or more pieces of fried chicken with choice of two sides and dinner rolls sold at one price) that include at least 1 hot food item are taxable at the high rate, even if some foods in the package, sold alone, would be taxable at the low rate.  Low rate items would include, but are not limited to, doughnuts (regardless of quantity), bagels, rolls and whole breads or bakery items prepared by the retailer; sandwiches that are premade by the retailer and set out for sale to customers; cold pizzas prepared by the retailer and set out for sale to customers; stuffed olives or peppers prepared by the retailer and set out for sale in individual sized containers; and deli items sold by the retailer to customers by size or weight (prepared salads, e.g., potato, pasta, bean or fruit salads; jello; pudding; stuffed olives). 

 

B)        Grocery Store – No On-premises Facilities for Consumption of Food.  Provided that the requirements of subsection (d)(2) are met, examples of high rate items would include, but are not limited to, hot foods (soup, pizza, rotisserie or fried chicken, hot dogs); all sandwiches, either hot or cold, that are prepared to the individual order of a customer; and salads that are made by customers at a salad/olive/sushi bar.  Also included are hot precooked meals sold to customers, such as a Thanksgiving dinner.  If precooked meals are sold in an unheated state of preparation, however, they are considered to be low rate.  Low rate items would include, but are not limited to, doughnuts (regardless of quantity), bagels, rolls and whole breads or bakery items prepared by the retailer; sandwiches that are premade by the retailer and set out for sale to customers; cold pizzas prepared by the retailer and set out for sale to customers; stuffed olives or peppers prepared by the retailer and set out for sale in individual sized containers; and deli items sold by the retailer to customers by size or weight. 

 

C)        Restaurants and Cafeterias.  All foods sold by a restaurant or a cafeteria are considered food prepared for immediate consumption.  Such food can either be prepared to the individual order of a customer or premade and set out for selection by the customer. However, if a restaurant or cafeteria also sells whole pies, cakes or individual pastries for sale, these items are taxable at the low rate, as long as the requirements of subsection (d)(1) are met.   

 

D)        Bakery.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, the following items are taxable at the low rate:  doughnuts, cookies or individual pastries, regardless of quantity, sold for consumption off the premises where sold, and whole cakes or pies, such as wedding or special occasion cakes.  Food sold for consumption on the premises, such as doughnuts and coffee, are subject to the high rate of tax.

 

E)         Delicatessen.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, meat, cheese and prepared salads sold by weight or volume are taxable at the low rate.  Individual sandwiches prepared to the individual order of a customer are high rate, as well as other food sold for consumption on the premises.  

 

F)         Ice Cream Store.  Ice cream items in individual sizes, either prepared to the individual order of a customer or premade and offered for sale by a retailer, constitute "food prepared for immediate consumption" and are subject to the high rate of tax.  These items include ice cream cones, cups of ice cream, sundaes, shakes and premade ice cream sandwiches, bars or cookies.  However, provided that the requirements of either subsection (d)(1) or (d)(2) are met, ice cream cakes or rolls or ice cream packaged in premeasured containers, such as a pint, quart or gallon, are subject to tax at the low rate. 

 

G)        Food Sold at Food Courts.  All hot food and food prepared to the individual order of a customer by a retailer at a food court is subject to the high rate of tax.  In addition, all other food sold for consumption on the premises of a food court is subject to the high rate of tax. 

 

H)        Convenience Stores.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, prepackaged food items not prepared by a convenience store retailer are subject to the low rate of tax.  These items include, but are not limited to, chips, snacks, bread products and cookies.  The sale of hot food items, such as hot dogs, nachos or pretzels, are subject to the high rate of tax, as well as other food sold for consumption on the premises.  In addition, effective September 1, 2009, all sales of "candy", as defined in subsection (d)(7), are subject to the high rate of tax.

 

I)          Coffee Shops.  Provided that the requirements of either subsection (d)(1) or (d)(2) are met, coffee, latte, cappuccino and tea (prepared either hot or cold) and food sold for consumption on the premises (e.g., pastries, cookies, snacks) are subject to the high rate of tax.  Bulk coffees (beans or grounds, for instance) and teas, or pastries that are not consumed on the premises, are subject to the low rate of tax.

 

5)         The reduced rate does not extend to alcoholic beverages.  An alcoholic beverage is any beverage subject to the tax imposed under Article VIII of the Liquor Control Act of 1934 [235 ILCS 5/Art. VIII].

 

6)         The reduced rate does not extend to soft drinks.  Soft drinks will be taxed at the State sales tax rate of 6.25%.  

 

A)        Until September 1, 2009, the term "soft drinks" means any complete, finished, ready-to-use, non-alcoholic drink, whether carbonated or not, including but not limited to soda water, cola, fruit juice, vegetable juice, carbonated water, and all other preparations commonly known as soft drinks of whatever kind or description that are contained in any closed or sealed bottle, can, carton, or container regardless of size.  "Soft drinks" does not include coffee, tea, non-carbonated water, infant formula, milk or milk products as defined in Section 3(a)(2) and (4) of the Grade A Pasteurized Milk and Milk Products Act [410 ILCS 635], or drinks containing 50% or more natural fruit or vegetable juice. (Section 2-10 of the Act)  Frozen concentrated fruit juice, dry powdered drink mixes and fruit juices that are reconstituted to natural strength are not soft drinks.

 

B)        On and after September 1, 2009, the term "soft drinks" means non-alcoholic beverages that contain natural or artificial sweeteners.  "Soft drinks" do not include beverages that contain milk or milk products, soy, rice or similar milk substitutes, or greater than 50% of vegetable or fruit juice by volume. (Section 2-10 of the Act)

 

7)         On and after September 1, 2009, the reduced rate does not extend to "candy".  Candy will be taxed at the state sales tax rate of 6.25%.  "Candy" means a preparation 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.  "Candy" does not include any preparation that contains flour or requires refrigeration. (Section 2-10 of the Act)

 

e)         Prescription and non-prescription medicines, drugs, medical appliances, modifications to a motor vehicle for the purpose of rendering it usable by a disabled person, and insulin, urine testing utensils, syringes and needles used by diabetics.  With respect to prescription and non-prescription medicines, drugs, medical appliances, modifications to a motor vehicle for the purpose of rendering it usable by a disabled person, and insulin, urine testing utensils, syringes and needles used by diabetics, for human use, the tax is imposed at the rate of 1%.

 

1)         A medicine or drug is any pill, powder, potion, salve or other preparation for human use that purports on the label to have medicinal qualities.  Medicines prescribed by veterinarians for animals are subject to the high rate of tax.  A written claim on the label that a product is intended to cure or treat disease, illness, injury or pain, or to mitigate the symptoms of a disease, illness, injury or pain, constitutes a medicinal claim.

 

A)        Examples of medicinal claims that will qualify the product for the low rate of tax include, but are not limited to:

 

i)          "medicated";

 

ii)         "heals (a medical condition)";

 

iii)         "cures (a medical condition)";

 

iv)        "for relief (of a medical condition)";

 

v)         "fights infection";

 

vi)        "stops pain";

 

vii)        "relief from poison ivy or poison oak";

 

viii)       "relieves itching, cracking, burning";

 

ix)        "a soaking aid for sprains and bruises";

 

x)         "relieves muscular aches and pains";

 

xi)        "cures athlete's foot";

 

xii)        "relieves skin irritation, chafing, heat rash and diaper rash";

 

xiii)       "relief from the pain of sunburn";

 

xiv)       "soothes pain".

 

B)        The use of the terms "antiseptic", "antibacterial" or "kills germs" may or may not constitute a medicinal claim.

 

i)          The use of these terms in conjunction with a claim that the product kills germs in general does not constitute a medicinal claim.

 

ii)         However, a claim that a product is for use as an antiseptic to kill germs to prevent infection in cuts, scrapes, abrasions and burns does constitute a medicinal claim.

 

C)        Examples of claims that do not constitute medicinal claims include, but are not limited to:

 

i)          "cools";

 

ii)         "absorbs wetness that can breed fungus";

 

iii)         "deodorant, or destroys odors";

 

iv)        "moisturizes";

 

v)         "freshens breath";

 

vi)        "antiperspirant";

 

vii)        "sunscreen";

 

viii)       "prevents";

 

ix)        "protects".

 

D)        All lip balms qualify for the reduced rate of tax because the word "balm" is defined as a healing ointment or a preparation that relieves pain.

 

2)         A medical appliance is an item that is intended by its manufacturer for use in directly substituting for a malfunctioning part of the human body.  These items may be prescribed by licensed health care professionals for use by a patient, purchased by health care professionals for the use of patients, or purchased directly by individuals.  Purchases of medical appliances by lessors that will be leased to others for human use also qualify for the exemption.  Included in the exemption as medical appliances are such items as artificial limbs, dental prostheses and orthodontic braces, crutches and orthopedic braces, wheelchairs, heart pacemakers, and dialysis machines (including the dialyzer).  Corrective medical appliances such as hearing aids, eyeglasses and contact lenses qualify for exemption. Diagnostic equipment shall not be deemed to be a medical appliance, except as provided in Section 130.310(d).  Other medical tools, devices and equipment such as x-ray machines, laboratory equipment, and surgical instruments that may be used in the treatment of patients but that do not directly substitute for a malfunctioning part of the human body do not qualify as exempt medical appliances.  Sometimes a kit of items is sold so the purchaser can use the kit items to perform treatment upon himself or herself.  The kit will contain paraphernalia and sometimes medicines.  An example is a kit sold for the removal of ear wax.  Because the paraphernalia hardware is for treatment, it generally does not qualify as a medical appliance.  However, the Department will consider the selling price of the entire kit to be taxable at the reduced rate when the value of the medicines in the kit is more than half of the total selling price of the kit.

 

3)         Supplies, such as non-sterile cotton swabs, disposable diapers, toilet paper, tissues, towelettes, and cosmetics such as lipsticks, perfume and hair tonics do not qualify for the reduced rate.  Sterile dressings, bandages and gauze do qualify for the reduced rate.  Diapers for incontinent adults, as well as undergarments for incontinent adults, qualify for the low rate of tax.

 

d)         Insulin, urine testing materials, syringes, and needles used in treating diabetes in human beings qualify for the reduced rate of tax.  (Section 2-10 of the Act)

 

e)         Modifications Made to a Motor Vehicle for the Purpose of Rendering it Usable by a Disabled Person

 

1)         Effective August 17, 1995, modifications made to a motor vehicle, as defined in Section 1-146 of the Illinois Vehicle Code [625 ILCS 5/1-146], for the purpose of rendering it usable by a disabled person, qualify for the reduced rate of tax (Section 2-10 of the Act).  The low rate applies to modifications that enable a disabled person to drive a vehicle, or that assist in the transportation of disabled persons.  Examples of such modifications include, but are not limited to, special steering, braking, shifting, or acceleration equipment, or equipment that modifies the vehicle for accessibility, such as a chair lift.

 

2)         For purposes of this regulation, the term "disabled person" has the same meaning as a "person with disabilities" in Section 1-159.1 of the Illinois Vehicle Code [625 ILCS 5/1-159.1].

 

f)          Reporting

 

1)         The retailer must keep an actual record of all sales and must report tax at the applicable rates, based on sales as reflected in the retailer's records.  Books and records must be maintained in sufficient detail so that all receipts reported with respect to food, drugs, medicines and medical appliances can be supported.  The determination of the percentage of sales of food items sold in individual-sized servings referred to in subsections (b)(2)(B) and (b)(3), will be made by comparing the dollar amounts of the gross receipts of the two categories of foods.  The determination shall be based upon a period that will generally reflect the true character of overall sales rather than isolated or seasonal variations.

 

2)         A retailer who finds it difficult to maintain detailed records of receipts from sales of food, drugs, medicines and medical appliances at the reduced rate, as well as detailed records of receipts from all other sales of tangible personal property at the full rate, may request the use of a formula.  The request must be made to the Department in writing, must state the reasons that a formula method is necessary, and must outline the proposed formula in detail.  Included in the request must be a description of how the method can be audited by the Department.  Upon findings that the formula can be audited and will produce results that will reasonably approximate the actual taxable receipts in each category, the Department may issue its approval for use of the formula.  If approval is granted, the Department reserves the right to withdraw approval or require a change in procedure at any time.

 

(Source:  Amended at 33 Ill. Reg. 15781, effective October 27, 2009)