UPDATE: Oklahoma Amends Definitions of Food and Food Ingredients for Sales Tax Exemption

UPDATE: Oklahoma has revised and added regulations regarding the taxability of food and food ingredients and prepared food. Additionally, clarification has been provided regarding an effective date. Effective August 29, 2024, the sale of food and food ingredients is not subject to Oklahoma state sales tax. Sales of food and food ingredients are subject to any applicable municipal or county tax. Sales of prepared food, alcoholic beverages, and dietary supplements are taxed at the state sales and use tax rate of 4.5%.

“Prepared food” is defined as:

  • Food and food ingredients sold in a heated state or that is heated by the seller;
  • Two or more food ingredients mixed or combined by the seller for sale as a single item; or
  • Food sold with eating utensils provided by the seller

The following items of prepared food are exceptions to the rule and are not taxed as prepared food:

  • Food that contains raw eggs, fish, meat, or poultry products that require cooking after the sale to prevent food-borne illnesses and food the customer generally cooks or heats after the sale;
  • Food that is only cut, repackaged, or pasteurized by the seller;
  • Food sold in an unheated state by weight or volume as a single item and eating utensils are not provided by the seller;
  • Food sold by food manufacturers; and
  • Food that ordinarily requires additional cooking to finish the product to its desired final condition

The state has also provided additional information regarding the Prepared Food Sales Percentage (PFS%). All sellers that primarily sell prepared food and food sold with eating utensils provided by the seller are required to annually calculate their PFS%.

  • If a seller has a PFS% greater than 75%, food and food ingredients, bottled water, candy, and soft drinks are taxed at the state sales tax rate of 4.5%.
  • If a seller has a PFS% of 75% or less, food and food ingredients, bottled water, candy, and soft drinks are subject to 0% state sales tax. All sales of prepared food are taxed at the state sales tax rate of 4.5%.

Even if more than 75% of the sales of food by the seller are sales of prepared food, sales of food and food ingredients are subject to 0% state sales tax if:

  • The food item contains four or more servings packaged as one item for single price;
  • The food item has not been made or heated by the seller; and
  • Eating utensils are made available to the buyer.

(Oklahoma Register, Volume 41, Issue 23), Oklahoma Tax Commission)

 

 

See below for original version, posted May 14, 2024:

For purposes of Oklahoma’s sales tax exemption for food and food ingredients, the state has clarified the definition of “prepared food” and added definitions for “bottled water” and “food sold with eating utensils provided by the seller.”

“Bottled water” means water that is placed in a safety sealed container or package for human consumption. Bottled water is calorie-free and does not contain sweeteners or other additives except that it may contain: antimicrobial agents, fluoride, carbonation, vitamins, minerals, and electrolytes, oxygen, preservatives, and only those flavors, extracts, or essences derived from a spice or fruit.

“Food sold with eating utensils provided by the seller” means food sold by a seller who meets the following requirements:

  • For a seller with a prepared food sales percentage of greater than 75%, the seller makes eating utensils available to purchasers or, if a food item is bottled water, candy, or soft drinks, the seller gives or hands the eating utensils to purchasers or makes plates, bowls, glasses, or cups that are necessary for the purchaser to receive the food available to purchasers.
  • For a seller with a prepared food sales percentage of 75% or less, the seller’s business practice is to give or hand eating utensils to purchasers. Eating utensils necessary for the purchaser to receive the food, such as bowls and cups, need only be made available to purchasers.

The legislation states that food sold with eating utensils provided by the seller does not include food items that have a utensil placed in a package with the food items by a person other than the seller, and that other person’s North American Industry Classification System (NAICS) classification code is that of a manufacturer, subsector 311. If the packager has any other NAICS classification code, the seller is considered to have provided the eating utensil.

The definition of “prepared food” has been clarified to add that it shall not include food sold by a seller whose primary NAICS classification is manufacturing in Sector 311, except subsector 3118, food sold in an unheated state by weight or volume as a single item, and food sold that ordinarily requires additional cooking, not including just reheating, by the consumer prior to consumption.

Sales of food including groceries and prepared food in Oklahoma have generally been taxable. With the passage of House Bill No. 1955, Oklahoma will provide a zero rate for state sales tax on food and food ingredients effective August 2024. Food and food ingredients will include bottled water, candy, and soft drinks. Food and food ingredients will not include prepared food. The legislation provides very specific guidelines for sellers of food and food ingredients in Oklahoma. Affected sellers will want to review the updated legislation carefully to confirm that they are applying the correct sales tax treatment to their sales.

Note that the legislation does not name an actual effective date, but rather states that “This act shall become effective upon the same effective date as Enrolled House Bill No. 1955 of the 2nd Regular Session of the 59th Oklahoma Legislature as prescribed by Section 58 of Article V of the Oklahoma Constitution.” (S.B. 1283, Laws 2024)

Posted on May 14, 2024