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Illinois: How to Tax a Gift Basket


 Gift Baskets: When Are They Not Appropriate?

The season of holiday gift baskets is not limited to December. What would Valentine's Day be without gift baskets brimming with chocolate and flowers? What would Easter be without the Easter basket? And don't forget birthdays and anniversaries and get well occasions, all very popular on the gift basket front.

Last fall, an Illinois business asked the state for guidance on how to tax their gift baskets. The baskets "primarily contain freshly roasted coffee beans along with candy-like products… ." By weight, the boxes are "approximately 80% coffee and 20% candy-like products." In Illinois, roasted coffee is taxed at the food rate, as are candy-like products that contain wheat flour.

The Illinois Department of Revenue responded with a General Interest Letter, which "direct[s] taxpayers to Department regulations or other sources of information regarding the topic about which they have inquired" but "is not a statement of Department policy and is not binding on the Department."

In the letter, IDOR points out that "[t]he taxability of food items does not depend solely on the food item sold, but instead is determined primarily by the nature of the establishment selling the food products." Much depends on whether or not the food is "food prepared for immediate consumption" or "bulk food."

Food Prepared for Immediate Consumption:

  • Prepared by you;
  • To be eaten without substantial delay; and
  • All hot food items.

Bulk Food:

  • Food not prepared by you.

Snapshot

If more than 50% of all food sales are bulk sales, "the low rate applies to all your sales of food (except for hot food and alcoholic beverages and soft drinks)."

If there are on-premises dining facilities that are not physically separated from the other areas, and if sales for food consumed in that area are not recorded separately, "the store will incur the high rate on all food items (even those that are bulk)."

The letter supposes that a majority of the food in question is bulk food and should therefore be taxed at that low rate (1% plus applicable local taxes).

Gift Baskets

As for gift baskets, there are other rules:

  • "If over 50% of the value of the gift basket stems from the food products contained in it, the item is considered a food and will be taxable, given the assumptions, at the low rate of tax."
  • "If, however, over 50% of the value of the basket it is derived from non-food or high-rate items (i.e., the basket itself, ... alcohol beverages or candy), then the basket is taxable at the high rate established for general merchandise."

Remember that when you order your next gift basket in Illinois.

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photo credit: Isle Concierge via photopin cc


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.