Earlier this month, Krispy Kreme lost a claim it initiated in 2006 to have its donut sales in Missouri taxed the same as donut sales by grocery stores. In context, this appears to be a minor loss in what is shaping up to be a good month for the confectioner. As reported by Christopher Brown in the Weekly State Tax Report”, Krispy Kreme will go private in a $1.35 billion purchase by the German conglomerate that owns Keurig.
In Missouri, sales of food eligible for purchase with food stamps are generally taxable at a reduced rate of 1.225%. However, all sales of food by an establishment are taxable at the higher generally applicable rate if more than 80% of the establishment’s gross receipts are from sales of food for immediate consumption.
Krispy Kreme went to great lengths to show that in Missouri no more than 80% of its donuts were sold for immediate consumption, even conducting an online survey of customers to determine where they consumed them. Despite this, the Missouri Supreme Court ruled that all of Krispy Kreme’s donuts were suitable for immediate consumption, regardless of whether they were actually consumed immediately. Consequently, none of its sales were eligible for the reduced rate that might otherwise apply to sales of donuts by grocery stores.
Fortunately for lovers of Krispy Kreme’s glazed sour cream and many other delicious flavors, not all states agree with Missouri’s Supreme Court. For instance, last summer former Louisiana Gov. Bobby Jindal signed into law the “Deauxnut Fairness Act”. As a result of this legislation, all sales of bakery products for home consumption are exempt from tax in Louisiana, whether purchased at grocery stores, bakeries, or donut shops.
Additionally, 15 of the 24 states that are members of the Streamlined Sales and Use Tax Agreement, do not tax donuts when they are sold without eating utensils, regardless of the type of establishment by which they are sold. Wisconsin exempts donuts sold without eating utensils from tax unless they are sold heated. As of this writing, it is unclear whether this means that the state only taxes Krispy Kreme’s donuts when its “HOT DOUGHNUTS NOW” sign is illuminated.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is it realistic to expect retailers to keep track of which foods they sell with eating utensils if these are provided (or not) according to the customer's preference?
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