Sales Tax State Activity Update - September 2005

It's Time to Tax the Doughnuts

The Illinois Administrative Law Judge recently ruled that equipment is taxable when used primarily in baking donuts for sale at retail food service establishments.

An Illinois taxpayer was audited and assessed use tax on equipment used to make donuts for sale. Illinois sales and use tax law provides an exemption for machinery and equipment used primarily in the manufacturing or assembling of tangible personal property for sale or lease. The term primarily means more than fifty percent of the time. In addition, the preparation of food and beverages by restaurants, food service establishments, and other retailers is not classified as manufacturing.

The Illinois Department of Revenue established that fifty percent of the taxpayer's donut sales were to its own retail food service establishments, making this a non-manufacturing activity. The taxpayer failed to provide adequate evidence to contradict the Department's audit findings. Therefore, baking equipment is taxable when used primarily in baking donuts for sale at retail food establishments.

View the full text here.

(Illinois Department of Revenue, Office of Administrative Hearings No. 05-12, 4/27/05)

---

Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.

Email Address