Businesses

Effective August 29, 2024, the sale of "food and food ingredients" and certain "prepared food" will be exempt from state sales and use tax. The sale of prepared food, alcoholic beverages and dietary supplements are subject to the full state sales and use tax rate of 4.5%.  

The exemption for food and food ingredients, and certain prepared food, applies only to the state portion of the sales tax rate. All local sales and use taxes still apply. [House Bill 1955 (2024) and Senate Bill 1283 (2024)]

Food and food ingredients are typically thought of as “grocery store food items,” especially foods made and packaged by a manufacturer or processor and fresh, raw food which may be purchased from a bulk vendor or from a local seller, such as a farmers market. Food and food ingredients do not include alcoholic beverages, dietary supplements or prepared food.

Prepared food is food intended for, and is generally ready for, immediate consumption, either on or off the premises of the seller. To be considered prepared food, the legal entity that sells the product at retail must do an activity in addition to selling the item: heat, mix or provide utensils.

Yes. There are some items of prepared food that are exceptions to the rule and are exempt from state sales tax.

1. Food that contains raw eggs, fish, meat or poultry products that requires cooking after the sale to prevent food-borne illnesses and food the customer generally cooks or heats after the sale. 

Example: A butcher shop or meat market sells raw steaks. Because the steaks require cooking by the consumer as recommended by the Food and Drug Administration, so as to prevent food borne illnesses, the steaks are not prepared food.

2. Food that is only cut, repackaged or pasteurized by the seller.  

Example: Meat from a deli counter that is sliced and wrapped for a customer, or fruit sliced by the seller and packaged into containers or onto platters for sale.

3. Food sold in an unheated state by weight or volume as a single item and eating utensils are not provided by the seller.  

Example: A deli prepares potato salad in bulk quantities. It sells the potato salad by the weight requested by each purchaser, placing that amount in a container sized to accommodate the chosen weight. If eating utensils are not provided by the deli, the potato salad is exempt from state sales tax because it is sold at a variable unit price determined by weight. 

Example: A deli prepares potato salad in bulk quantities. It packages the potato salad in uniform containers, but the containers are priced for sale according to the weight of each individual container. If eating utensils are not provided by the deli, the potato salad is exempt from state sales tax because it is sold for a variable unit price determined by the weight of each individual container.  

Example: A deli prepares potato salad in bulk quantities. It packages the potato salad in uniform containers which are sold at a standard price per container. Although the potato salad is not heated, and eating utensils are not provided by the deli, the potato salad is not exempt from state sales tax because it is sold for a standard unit price per container and not for a variable unit price determined by the weight of each individual container.

4. Food items prepared and produced by a third-party food manufacturer or processor are generally considered to be food and food ingredients when sold by a retailer to a final consumer. 

Example: Cereals, canned vegetables and dairy products.

5. Prepared food that ordinarily requires cooking (as opposed to just reheating) and is sold without eating utensils is exempt from the state sales tax rate. 

Example: At a specialty store, a customer purchases a take-and-bake pizza (made with precooked meat and no eggs). If eating utensils are not provided by the specialty store, the take-and-bake pizza is exempt from state sales tax rate because it requires cooking.

Milk, soft drinks in a bottle or can, baby food, fruits and vegetables, potato chips, fish and meats, herbs and spices, frozen meals, pasta, and flour. Additional examples of common food items purchased at your local grocery that are exempt from state sales tax are in the Oklahoma Product Guide.

Alcoholic beverages, beer, dietary supplements, self-serve fountain drinks, rotisserie chicken, pet food, vitamins, toiletries, over-the-counter medications and food made by the seller (e.g., birthday cakes, sushi, sandwiches, deli and salad). Additional examples of common food items purchased at your local grocery and not exempt from state sales tax rate are in the Oklahoma Product Guide.

No. The sale of food and food ingredients will continue to be subject to local sales tax.

Food purchased at restaurants is considered “prepared food” and is still subject to state sales tax, in addition to any locally levied sales tax. 

If a seller’s percentage of prepared food sales are greater than 75% of total sales of food items, and utensils are made available to the purchaser receiving the food, then all food items sold by the seller are considered prepared food and are not exempt from state sales tax.

An eating utensil is a useful tool or instrument used in the consumption of food, including bowls, chopsticks, cups, forks, glasses, knives, napkins, plates designed for serving food, skewers inserted into food and handed to the customer, spoons or straws. Material used solely to package and transport food does not qualify as an eating utensil.

To determine when an item is considered “prepared food” and is subject to state sales tax, sellers should ask themselves the following questions:

Step 1.
Do I make utensils generally available to my customers and is my percentage sales of prepared food greater than 75%?  

If the answer to both parts of this question is “yes,” state sales tax must be collected on all sales of food and food ingredients. The only exception is for items containing four servings or more, packaged for sale as a single item and sold for a single price, not made or heated by the seller and where the seller makes available eating utensils necessary for the purchaser to receive the food. (See FAQ "What is the exception to the 75% rule?")

If the answer is no to either part of the question, separately evaluate the taxability of each item sold in accordance with Steps 2 through 5 below.  

Step 2.
Is a plate, glass, cup or bowl necessary to receive the item or is my customary practice to deliver a utensil for the item to the customer as part of the sales transaction? 

If the answer to either part of this question is “yes,” the sale is not exempt from state sales tax.  

If the answer to both parts of this question is “no,” move to Step 3. 

Step 3.
Am I heating the item or selling it in a heated state?  

If the answer is “yes,” the sale is not exempt from state sales tax. 

If the answer is “no,” move to Step 4.  

Step 4.
Did I mix or combine two or more ingredients to sell as a single item? 

If the answer is “no,” the sale is exempt from state sales tax.  

If the answer is “yes,” move to Step 5. 

Step 5.
Ask yourself the following four questions:  

1. Did I only cut, repackage or pasteurize the product? 

2. Is the food sold in an unheated state by weight or volume as a single item and did I not provide eating utensils? 

3. Am I a food manufacturer under NAICS, Sector 311, other than a bakery (subsector 3118)? 

4. Does the product contain raw eggs, fish, meat or poultry that requires cooking by the consumer as recommended by the FDA to prevent food borne illness?  

If the answer to any one of these four questions is “yes,” the sale is exempt from state sales tax. 

If the answer to all four of these questions is “no,” the sale is not exempt from state sales tax. 

If you make an exempt sale of food and food ingredients that is also exempt pursuant to one of the itemized exemptions in Section J. SALES TAX EXEMPTION SCHEDULE, lines 3a through 3x on the Oklahoma Sales Tax Return, record the amount of exempted sales in Section J. In the example set out above, you would record the amount of exempted sales on line 3j Sales to qualified veterans on the Oklahoma Sales Tax Return. Do not include the amount of exempted sales to qualified veterans on line 4 Total eligible food and food ingredient sales.

Yes. The sale of food and food ingredients continue to be subject to local sales tax.

Yes. Candy is considered a food and food ingredient and is exempt from state sales tax. 

No. Items prepared in a home are most often considered prepared foods and are not eligible for the 0% state sales tax rate.

A dietary supplement is a product that provides nutrients or other compounds to increase what you get from your normal diet. It is not regular food and is not meant to be a full meal. Dietary supplements come in forms like tablets, capsules, powders and liquids. They contain ingredients like vitamins, minerals, herbs, amino acids, or extracts from plants. The product's label will have a "Supplement Facts" box that identifies it as a dietary supplement.

A seller that makes eating utensils available to their customers must calculate their prepared food sales percentage on or before January 31 of each calendar year using data from the prior year to calculate the prepared food percentage for the current year. The monthly Oklahoma sales tax return will have a check box for sellers to indicate if they are a business whose sales of prepared food is greater than 75% of its total sales.

The formula for calculating the total sales percentage is the sum of gross sales of heated food, mixed/combined food and food sold in such a way that a plate, glass, cup or bowl is necessary to receive the food divided by gross sales of all food and food ingredients (including all prepared food and dietary supplements).

You are required to maintain records to support the calculation of the 75% rule. Your sales receipts must also segregate taxable and state-tax-exempt sales. You will indicate on your Oklahoma sales tax return that your prepared food sales exceed 75% of your total food sales by marking the appropriate box on the return.   

Even if more than 75% of food sales are sales of prepared food, sales of food or food ingredients will be exempt from state sales tax if:

• The food item contains four or more servings packaged as one item for a single price;  

• Has not been made or heated by the seller, and 

• Utensils are not provided by the seller.  

To determine the number of servings in the food item, use the information on the product label. If there is no product label, make a reasonable determination as to the number of servings in the food item.  

A food manufacturer is primarily engaged in transforming raw agricultural products, livestock and seafood into food products for intermediate or final consumption. This includes processing, preserving and packaging food products. Generally, a food manufacturer must meet the following requirements:

1. Facility: Must operate in a commercial kitchen that meets specific health and safety standards.
   
   
2. Licensing: Typically require various licenses and permits from local, state, and sometimes federal authorities. A manufacturer is often eligible to obtain Sales Tax Permit or a Manufacturer Sales Tax Exemption Permit issued by the Oklahoma Tax Commission.
   
   
3. Inspections: Subject to regular inspections by health departments and food safety regulators.
   
   
4. Food safety protocols: Must implement and maintain strict food safety protocols, often including Hazard Analysis and Critical Control Points (HACCP) plans.
   
   
5. Labeling: Must follow strict labeling rules set by the FDA, including nutritional information, allergen warnings and ingredient lists.
   
   
6. Employee training: Required to provide food safety training to employees.
   
   
7. Record keeping: Must maintain detailed records of production, distribution and food safety measures.
   
   
8. Product testing: May be required to conduct regular product testing for safety and quality.

Because the effective date of the bill is in the middle of the month, you will edit the sales tax rate in your sales tax collection software system to stop collecting the 4.5% state sales tax on food and food ingredients beginning on August 29, 2024. You will continue to collect and remit state sales tax on sales of food and food ingredients, along with any applicable city and county sales tax, for the period of August 1 through August 28, 2024.

No, businesses are required to comply with the reduced rate as of the effective date of the legislation August 29, 2024. Any preparation for the change must be completed prior to the effective date of the legislation.