Grocery stores and convenience stores not only sell food products, they also sell a wide variety of other items and services – some of them taxable, and others nontaxable. For example, flour, sugar, bread, milk, eggs, fruits, vegetables and similar groceries (food products) are not subject to Texas sales and use tax. Tax is due, however, on non-food items such as paper, pet, beauty and hygiene products; clothing; books; and certain edible items.
Food and Beverages
Bakery Items – Taxable and Nontaxable
Bakery items sold by a business that qualifies as a bakery are not taxable. A bakery is a retail location where more than 50 percent of sales consist of bakery items sold from a display case or counter and consumed off the premises.
Bakery items sold by a business that does not qualify as a bakery are taxable when sold with eating utensils (plates, knives, forks, spoons) or when heated.
Bakery items include:
Kolaches (those with meat are bakery items only when the dough is cooked around the meat).
Baking Products – Nontaxable
Baking products are not taxable, including:
Beer and Wine – Taxable
Beer and wine are taxable.
Beverages and Water – Taxable and Nontaxable
Soft drinks are taxable and include:
Carbonated and non-carbonated, non-alcoholic beverages that contain natural or artificial sweeteners.
Canned, bottled, frozen or powdered drinks and drink mixes.
All “-ades” and punches containing less than 50 percent vegetable or fruit juice by volume.
Energy drinks, sports drinks and naturally or artificially sweetened electrolyte drinks are taxable as soft drinks, except when they:
are labeled (or required to be labeled) with a “Supplement Facts” panel by the Food and Drug Administration;
contain more than 50 percent vegetable or fruit juice by volume.
Nontaxable beverages are:
Beverages that contain milk; milk products; milk substitutes (almond, soy, rice, etc.); or juice with more than 50 percent vegetable or fruit juice by volume.
Water, including unflavored water, mineral water; spring water and sparkling water.
Candy and Gum – Taxable
Candy and gum are taxable. These include:
Bars, drops, taffy and other confections made of natural or artificial sweeteners.
Nuts and fruits that have been candied, crystalized, glazed or coated with chocolate, yogurt or caramel.
Nuts roasted with a sweetener.
Coffee and Tea – Taxable and Nontaxable
Coffee and tea are taxable when they are:
bottled or canned and contain natural or artificial sweeteners; or
sold in a heated state or in a cup or glass or with a straw.
Nontaxable coffee and tea include:
Bottled or canned coffee and tea (when not sweetened).
Coffee beans and ground coffee.
Tea bags and loose tea.
Food Products – Nontaxable
Food products are not taxable. Food products include flour, sugar, bread, milk, eggs, fruits, vegetables and similar groceries.
Nontaxable food products also include food that is:
typically reheated before eating; or
only cut up, repackaged or pasteurized such as fruit, vegetable or cheese trays.
If a store has a microwave that the customer uses to reheat food, tax is not due. For example, if the store sells a frozen burrito, and the customer uses the store’s microwave to heat it, tax is not due.
Cold drinks sold with meals or with eating utensils**.
Any food sold with eating utensils**.
Sandwiches (unless sold frozen or partially frozen and require thawing or heating by the customer before eating).
Other food or drinks that can be eaten immediately without further preparation by the purchaser and sold by a restaurant lunch counter, deli or other similar location within the grocery or convenience store.
Food or drinks sold from a vending machine.
Food created at a store by combining two or more food ingredients sold as one item (salad, salsa, pesto and hummus).
*Hot food is food sold after it is heated by the seller. Examples are pizza, fried or rotisserie chicken, burritos and soup. Hot food also includes frozen or cold food (including sandwiches) that is heated by the seller. For example, if a store employee heats a frozen burrito for the customer, tax is due.
**Eating utensils include trays, plates, knives, forks, spoons, glasses, cups, straws or chopsticks. Napkins, wax paper and foam or plastic clamshells are not eating utensils.
If a store, other than a bakery, gives the customer plates or other eating utensils with bakery items, or heats bakery items, the bakery items are taxable.
Snack Items – Taxable and Nontaxable
Snack items are taxable when sold in an individual-sized portion or from a vending machine. An individual-sized portion contains less than 2.5 ounces or is labeled as having not more than one serving. Snack items that are not individual-sized are not taxable, unless sold as a part of a meal.
Snack items include:
Breakfast bars, granola bars, nutrition bars, sports bars, protein bars and yogurt bars (unless labeled and
marketed as candy).
Chips, crackers, hard pretzels, pork rinds and corn nuts.
Ice cream, sherbet and frozen yogurt.
Ice pops, juice pops, sorbet and other frozen fruit items containing less than 50 percent fruit juice by volume.
Nuts (not pine nuts or candy-coated nuts).
Popcorn (kernels and microwaveable).
Snack mix and trail mix.
Sunflower seeds and pumpkin seeds.
Snack items are not taxable when sold in prepackaged units containing more than one individual-sized package, such as a box of six prepackaged, individual-sized bags of chips.
Drugs and Supplements
Drugs, Medicines and Dietary Supplements – Nontaxable
Dietary supplements are not taxable. A dietary supplement is a product that is labeled with a “Supplement Facts” panel in accordance with regulations of the FDA. If a product is not labeled with a “Supplement Facts” panel, it is also considered a dietary supplement if it:
contains one or more vitamins, minerals, herbs or botanicals, amino acids, or substances that supplement the daily dietary intake;
is not represented as food or the sole item of a meal or the diet; and
is labeled “dietary supplement” or “supplement.”
Products containing cannabidiol (CBD) are not classified as dietary or nutritional supplements. CBD or products containing CBD are not eligible for the dietary and nutritional supplement exemption from sales and use tax. These products should not be labeled as supplements. This exclusion reflects FDA guidance.
A cash discount is an offer to customers that reduces an item’s price. Tax is due on the final discounted price of a taxable item. For example, a store offers customers a 10 percent discount on all purchases paid with cash. If a customer buys a taxable item priced at $25, the discounted price is $22.50 after the 10 percent discount of $2.50 is deducted. Tax is due on the final discounted price of $22.50.
A coupon is a cash discount. The store must subtract the coupon’s value from the taxable item’s sales price and collect tax on the resulting price.
Gift Cards and Gift Certificates
The purchase of a gift card or gift certificate is not subject to tax. Redeeming or purchasing an item with a gift card or gift certificate is treated as a cash transaction. If the item purchased is taxable, sales tax is due on the full sales price including any amount paid with the gift card.
There are two main types of rebates: manufacturer rebates and retailer rebates.
A mail-in manufacturer rebate does not lower the price because a third-party manufacturer provides the rebate after the sale.
For example, a $250 toaster oven comes with a $50 manufacturer mail-in rebate offer. A customer buys it for $250 and mails in the required information to receive the manufacturer’s $50 rebate. The store must collect tax on the $250 toaster oven price.
An instant manufacturer rebate the store deducts at checkout is treated as a cash discount.
For example, if a $250 toaster oven has a $50 instant rebate, tax is due on the final price of $200.
A mail-in retailer rebate issued by the retailer reduces the taxable sales price of the item when the rebate is processed and the refund is issued. In this case, the customer must pay tax on the item’s original price. When the store processes the rebate request, the store must give the customer the rebate and refund the tax collected on the rebate amount.
For example, a customer buys a television for $250 with a $25 mail-in retailer rebate. The tax is based on the $250 price. When the store rebates the $25, the store must also refund the tax paid on the $25 rebate amount.
Taxable items purchased in a grocery or convenience store are exempt when legally purchased with Supplemental Nutrition Assistance Program (SNAP) benefits. For more information about SNAP benefits, contact Texas Health and Human Services.