Retail Merchant operates the Indiana retail locations of a national drugstore chain. Protestant, hereinafter referred to as "Retail Merchant," collects sales tax on behalf of the state on the taxable items Retail Merchant sells to its customers who pay the sales tax. Retail Merchant is itself a taxpayer when it purchases tangible personal property for use in its own operations.
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Retail Merchant requested a rehearing on some of the issues that were denied in the LOF. Along with the request for rehearing, Retail Merchant submitted additional documentation in support of its request. …
"Nutritional" Bars
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Generally, items that contain natural or artificial sweeteners and are in the form of "bars, drops, or pieces," are taxable "candy," unless the item contains flour. If these items that contain natural or artificial sweeteners and are in the form of bars, also contain flour, then these items are not "candy" and are therefore considered food items not subject to tax.
Setting aside the Larabars, Retail Merchant has demonstrated that all the other "nutritional" bars listed in its Exhibit B contain some form of flour (such as wheat flour, rice flour, oat flour, etc.). Because these bars contain flour, they are not "candy" and are therefore considered "food or food ingredients." As "food or food ingredients" these bars are not subject to sales tax.
As for the referenced Larabars, even though they are in the form of "bars, drops, or pieces," the ingredients consist of different combinations of nuts and dried fruit without any additional natural or artificial sweeteners. In order to be a taxable "candy," an item must contain natural or artificial sweeteners and the Larabars do not contain additional listed natural or artificial sweeteners. Therefore, the Larabars are not "candy" and are therefore considered "food or food ingredients." As "food or food ingredients" the Larabars are not subject to sales tax.
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Liquid Drinks
The issue here is whether the protested liquid drinks are taxable "soft drinks" or non-taxable "food or food ingredients." Again referencing the LOF, a "soft drink" is a non-alcoholic drink that contains natural or artificial sweeteners. A "soft drink," however, cannot contain milk or milk products, soy, rice or similar milk substitutes, or more than 50 percent fruit or vegetable juice by volume.
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Retail Merchant must demonstrate that these liquid drinks are not taxable "soda drinks," by showing that the drinks that contain natural or artificial sweeteners, also contain milk or milk products, soy, rice or similar milk substitutes, or contain more than 50 percent fruit or vegetable juice by volume.
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Powdered Drink Mixes
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As the LOF states, Sales Tax Information Bulletin 29 (July 2005 and August 2008) lists "powdered drink mixes (including sweetened)" as a non-taxable food item.
Retail Merchant has documented the fact that these items are powdered drink mixes and therefore the sale of these powdered drink mixes is not subject to sales tax. A supplemental audit will remove these items from the sales tax assessment.
Food and Drink Thickeners
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The documentation provided by Retail Merchant on rehearing, shows that the items listed on Exhibit B with "Product UPC" designations ending with 21929, 17938, and 22510, are food grade corn starch used to thicken pureed food and liquids in order to assist people with swallowing disorders. Corn starch is a "food ingredient."
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Bloody Mary and Lime Juice Cocktail Mixers
Retail Merchant continues to protest "cocktail mixers" – specifically Bloody Mary mixers and a lime mixer. The LOF denied Retail Merchant's protest of these items pursuant to Sales Tax Information Bulletin 29 which states that dry or liquid "cocktail mixers" are taxable.
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Retail Merchant points to the product label of the Bloody Mary mixes which state that the mixes "contain 95[percent] juice." However the product label also lists the following ingredients in the order of quantity: water, tomato juice concentrate, high fructose corn syrup, and vinegar. The product label also lists other ingredients, none of which are a fruit or vegetable juice. A review of the documentation presented by Retail Merchant presents seemingly conflicting information. On the one hand the product label states that the product contains 95-percent juice. On the other hand, water appears to be present in greater volume than the tomato concentrate, so it is not clear what the 95-percent juice designation means.
The lime mixer label states that the product "contains 100[percent] juice." The product label also lists the following ingredients in order of quantity: water, high fructose corn syrup, concentrated lime juice, and couple of other ingredients. On the one hand, the product label states that the product contains 100 percent juice. On the other hand, water and high fructose corn syrup appear to be present in greater volume than the lime juice concentrate, so it is not clear what the 100 percent juice designation means.
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Given the ambiguity discussed above – and even if, for the sake of argument, the Department's Sales Tax Information Bulletin 29 is incorrect (which this SLOF does not concede) – and given that exemption is to be interpreted narrowly and in favor of taxation, the Bloody Mary mixers and the lime juice mixer remain taxable.
Protein Powder
Exhibit B contains one listed item that consists of protein powder packets. Retail Merchant designates this item as exempt because it is a "powdered protein drink." This item is actually a protein powder additive to food or drinks.
Again referring to the statutory definition of "food and food ingredients" referenced in the LOF, this item is a substance sold for ingestion by humans and consumed for its nutritional value. Based on the information provided, this item does not fall into any of the grocery item categories that would render it taxable, such as "candy."
Therefore, as a "food ingredient," the sale of this item is not subject to sales tax. A supplemental audit will remove these items from the sales tax assessment.
