Arkansas decreases sales tax on food and food ingredients
- Jan 14, 2019 | Gail Cole
Update 4.18.2019: The state sales and use tax rate for food dropped to 0.125% on January 1, 2019, not 1.25%.
The state sales tax rate for food and food ingredients (i.e., groceries) is lower than the general state sales tax rate in Arkansas, and on January 1, 2019, the tax on groceries dropped even more, from 1.5 percent to 0.125 percent. The state sales and use tax rate decrease for food and food ingredients doesn’t affect applicable local sales and use taxes, which continue to apply.
Food and food ingredients
“Food and food ingredients” is defined by Arkansas law as “substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value.” This includes “most common grocery type food items and foods packaged by a manufacturer for home consumption.”
However, not all edible products sold at grocery stores are considered to be “food” or “food ingredients.” Those that aren’t don’t qualify for the lower rate.
Food not eligible for the discounted rate
Candy and soft drinks
Candy and soft drinks were removed from the definition of “food” and “food ingredients” as of January 1, 2018, and therefore are no longer eligible for the reduced sales tax rate.
The state defines candy as “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.” However, foods that contain flour or require refrigeration don’t meet the definition of candy, even if they appear to be candy. For example, by the state’s definitions, Twix and Kit Kats aren’t candy because they contain wheat flour.
Arkansas law defines soft drink as “a nonalcoholic beverage that contains natural or artificial sweeteners.” Beverages that contain “milk or milk products, soy, rice, or similar milk substitutes” aren’t considered soft drinks, nor is any beverage containing more than 50 percent of vegetable or fruit juice by volume.
“Prepared food” isn’t eligible for the reduced sales tax rate. Prepared food is defined as:
- Food sold in a heated state, or heated by the seller (e.g., rotisserie chicken)
- Food with two or more ingredients combined by the seller and sold as a single item
- Food sold with eating utensils, plates, bowls, cups, napkins, or straws provided by the seller
However, “prepared food” doesn’t include food that’s “only cut, repackaged, or pasteurized by the seller,” or food containing raw animal products that require cooking by the consumer prior to consumption.
Other products not considered to be “food” or “food ingredients” for sales and use tax purposes — and therefore not eligible for the reduced state sales tax rate — include the following:
- Alcoholic beverages
- Bakery items made by the seller
- Coffee, if ready to drink
- Decorated pumpkins or other decorated food items (including cakes and cookies decorated by seller)
- Dietary supplements
- Foods heated or combined by seller (e.g., deli trays, food baskets)
- Foods sold at one, non-itemized price that includes one or more items of prepared food
- Fountain drinks, dispensed beverages
- Pet foods
- Salad bar
The best way to determine product taxability
Determining product taxability can be challenging, especially where food is concerned. For example, how would you tax a bottled Starbucks Frappuccino? Would it be subject to the full state rate like a soft drink because it’s sweetened, or subject to the reduced rate because it contains milk? According to the Arkansas Department of Finance and Administration, it’s subject to the reduced rate because of the milk — but how would you know?
Avalara AvaTax calculates rates, rules, and jurisdictional boundaries for you, freeing your resources for other concerns.