Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 237 - GENERAL EXCISE TAX LAW › Subchapter 1 - DEFINITIONS; ADMINISTRATION › Section 18-237-4-01.01 - Sales to eating or drinking retailers

Current through June, 2024
(a) As
				used in this section:
"Critical element" means any nonreturnable food or beverage
				  container which is necessary to contain food or beverage for delivery by an
				  eating or drinking retailer.
"Delivery" means the transfer of food or beverage by an
				  eating or drinking retailer to a purchaser for take-out purchases, home
				  transfer, transfer within a traditional service and fast-food restaurant, or
				  any combination thereof.
"Eating or drinking retailer" means a licensed retailer
				  engaged in the temporary or permanent activity of selling food or beverage at
				  retail. Eating or drinking retailer includes traditional service and fast-food
				  restaurants, carnivals, fairs, hot dog carts, lunch wagons, grocery or
				  department stores engaging in the sale of ready-to-eat foods, bakeries,
				  concession stands, or the like.
"Nonreturnable food or beverage container" means any
				  container, wrapper, or packaging, including any attached or unattached lid or
				  cover which is (1) usually discarded after its initial use, and (2) whose
				  generally known and most common use is to contain food or beverage for
				  delivery.
(b) If any
				tangible personal property is resold by an eating or drinking retailer for a
				separate charge, then section 18-237-4(a)(1) shall control the determination of
				the tax rate.
(c) Sales to an
				eating or drinking retailer of any tangible personal property which is a
				critical element and which is used to contain food or beverage sold at retail
				shall be taxable as sales at wholesale.
Example 1:
Taxpayer sells cardboard pizza boxes
				  to a pizza restaurant. The pizza restaurant prepares and serves pizza to
				  restaurant customers and also prepares pizza for take-out customers.
The pizza box is a critical element. The pizza box is a
				  nonreturnable food container; it is a container which is usually discarded
				  after its initial use and whose generally known and most common use is to
				  contain pizza for delivery. The pizza box also is necessary to contain the
				  pizza for delivery by the restaurant.
Lastly, the pizza box is used to contain the pizza sold at
				  retail. Sales of the pizza boxes, therefore, are taxable as sales at
				  wholesale.
Example 2:
Taxpayer sells white paper boxes and
				  styrofoam containers to a Chinese restaurant. The restaurant prepares and
				  serves food to restaurant customers and also prepares food for take-out
				  customers.
White paper boxes and styrofoam containers are critical
				  elements. Both white paper boxes and styrofoam containers are nonreturnable
				  food containers; they are containers which are usually discarded after their
				  initial use and whose generally known and most common uses are to contain food
				  for delivery. White paper boxes and styrofoam containers also are necessary to
				  contain the food for delivery by the restaurant.
Lastly, the white paper boxes and styrofoam containers are
				  used to contain the food sold at retail. Sales of the white paper boxes and
				  styrofoam containers, therefore, are taxable as sales at wholesale.
Example 3:
Taxpayer sells cups and cup lids to
				  a lemonade stand. Cups and cup lids are critical elements. Cups and cup lids
				  form nonreturnable beverage containers; cups and cup lids form containers which
				  are usually discarded after their initial use and whose generally known and
				  most common uses are to contain beverages for delivery. Cups and cup lids also
				  are necessary to contain beverages for delivery by the lemonade stand.
Lastly, the cups and cup lids are used to contain the
				  lemonade sold at retail. Sales of the cups and cup lids, therefore, are taxable
				  at wholesale.
Example 4:
Taxpayer sells paper wrappers to a
				  lunch wagon operator. The lunch wagon operator prepares hot dogs and sandwiches
				  for sale; they are wrapped in the paper wrappers for delivery of the food to
				  the purchasers.
Paper wrappers are critical elements. Paper wrappers are
				  nonreturnable food containers; they are wrappers which are usually discarded
				  after their initial use and whose generally known and most common uses are to
				  contain food for delivery. Paper wrappers also are necessary to contain the hot
				  dogs and sandwiches for delivery by the lunch wagon operator.
Lastly, the paper wrappers are used to contain the hot dogs
				  and sandwiches sold at retail. Sales of the wrappers, therefore, are taxable as
				  sales at wholesale.
Example 5:
Taxpayer sells plastic wrap, butcher
				  paper, and foam packing trays to a meat market. The market packages meat in the
				  plastic wrap, butcher paper, and foam packing trays for sale in the
				  market.
Plastic wrap, butcher paper, and foam packing trays are
				  critical elements. Plastic wrap, butcher paper, and foam packing trays are
				  nonreturnable food containers; they are packaging materials and containers
				  which are usually discarded after their initial use and their generally known
				  and most common uses are to contain food for delivery. Plastic wrap, butcher
				  paper, and foam packing trays also are necessary to contain the meat for
				  delivery by the meat market.
Lastly, the plastic wrap, butcher paper, and foam packing
				  trays are used to contain the meat sold at retail. Sales of the plastic wrap,
				  butcher paper, and foam packing trays, therefore, are taxable as sales at
				  wholesale.
Example 6:
Taxpayer sells foil-lined bags to a
				  full-service restaurant. The restaurant allows customers to take home the
				  leftovers from their restaurant meal; leftovers are packed in a foil-lined
				  bag.
The foil-lined bags are critical elements. The foil-lined
				  bags are nonreturnable food containers; they are packages which are usually
				  discarded after their initial use and whose generally known and most common
				  uses are to contain food for delivery. The foil-lined bags also are necessary
				  to contain the food for delivery by the restaurant.
Lastly, the foil-lined bags are used to contain the food
				  sold at retail. Sales of the foil-lined bags, therefore, are taxable as sales
				  at wholesale.
Example 7:
Taxpayer sells foil-lined hot dog
				  bags and waxed paper-lined popcorn bags. Hot dogs are cooked and then placed in
				  the hot dog bags for sale at the theater. The theater also pops popcorn; the
				  theater then packages the popcorn into individual portions in the waxed
				  paper-lined popcorn bags.
Foil-lined hot dog bags and waxed paper-lined popcorn bags
				  are critical elements. Foil-lined hot dog bags and waxed paper-lined popcorn
				  bags are nonreturnable food containers; they are packages which are usually
				  discarded after their initial use and whose generally known and most common
				  uses are to contain food for delivery. Foil-lined hot dog bags and waxed
				  paper-lined popcorn bags also are necessary to contain hot dogs and popcorn for
				  delivery by the theater.
Lastly, the foil-lined and waxed paper-lined bags are used
				  to contain the hot dogs and popcorn sold at retail. Sales of the foil-lined hot
				  dog bags and waxed paper-lined popcorn bags, therefore, are taxable as sales at
				  wholesale.
(d) The tax rate on the
				sale of any tangible personal property which is not a critical element or which
				is not used to contain food or beverage sold at retail shall be determined
				under section
				237-4,
				HRS, and section 18-237-4.
Example 1:
Taxpayer sells paper bags to a
				  carnival. The carnival packages malasadas for sale in paper bags.
These paper bags are not critical elements. As defined in
				  this section, a paper bag is not a nonreturnable food or beverage container;
				  although a paper bag is usually discarded after its initial use, the generally
				  known and most common use of a paper bag is not to contain food or beverage.
				  Rather, the generally known and most common use of a paper bag is to aid the
				  carrying of many items.
Consequently, although the paper bags are used by the
				  carnival to contain malasadas sold at retail, the paper bags are not critical
				  elements as defined in this section. The sale of the paper bags, therefore, is
				  taxed at retail as determined under section
				  237-4,
				  HRS, and section
				  18-237-4.
Example 2:
Taxpayer sells plastic drinking cups
				  to a supermarket which sells groceries and ready-to-eat foods. The supermarket
				  sells some of the cups at retail; the other cups are used to contain beverages
				  sold at a snack bar located in the supermarket.
The cups sold to the snack bar located in the supermarket
				  are critical elements. The cups sold to the snack bar are nonreturnable
				  beverage containers; these cups are containers which are usually discarded
				  after their initial use and whose generally known and most common uses are to
				  contain beverages for delivery. These cups also are necessary to contain
				  beverages for delivery by the supermarket. Lastly, the cups are used to contain
				  the beverages sold at retail. Sales of cups used to contain beverages sold by
				  the snack bar, therefore, are taxable as sales at wholesale.
The rest of the cups sold to the supermarket also are
				  critical elements but are not used to contain beverages for sale at retail. The
				  sale of cups to the supermarket for resale, therefore, is taxed at wholesale as
				  determined under section
				  237-4,
				  HRS, and section
				  18-237-4.
Example 3:
Taxpayer sells napkins, spoons, and
				  paper ice cream cups to an ice cream parlor. Napkins are wrapped around ice
				  cream cones and also are provided for sanitary use by purchasers.
Napkins and spoons are not critical elements. As defined in
				  this section, napkins and spoons are not nonreturnable food containers;
				  although napkins and spoons are usually discarded after their initial use, the
				  generally known and most common uses of napkins and spoons are not to contain
				  food. Rather, the generally known and most common use of a napkin is for
				  sanitary purposes, and the generally known and most common use of a spoon is to
				  aid consumption.
Consequently, because the napkins and spoons are not
				  nonreturnable food or beverage containers, they are not critical elements as
				  defined in this section. The sale of napkins and spoons to the ice cream
				  parlor, therefore, is taxed at retail as determined under section
				  237-4,
				  HRS, and section
				  18-237-4.
The paper ice cream cups, however, are critical elements.
				  The paper ice cream cups are nonreturnable food containers; they are containers
				  which are usually discarded after their initial use and whose generally known
				  and most common uses are to contain ice cream for delivery. The paper ice cream
				  cups also are necessary to contain the ice cream for delivery by the ice cream
				  parlor. Lastly, the paper ice cream cups are used to contain ice cream sold at
				  retail. Sales of the paper ice cream cups, therefore, are taxable as sales at
				  wholesale.
Example 4:
Taxpayer sells white paper boxes and
				  butcher paper to a carnival whose activities include engaging in the sale of
				  food and beverage at retail. Instead of using the boxes and butcher paper to
				  contain food for delivery, the carnival uses the butcher paper to decorate its
				  game and scrip booths and the boxes to contain t-shirts sold at retail.
Even though the boxes and butcher paper are critical
				  elements (i.e., the boxes and butcher paper are nonreturnable food containers
				  and packaging; they are containers and packaging which are usually discarded
				  after their initial use and whose generally known and most common uses are to
				  contain food for delivery; and the boxes and butcher paper also are necessary
				  to contain food for delivery by an eating or drinking retailer), they are not
				  used to contain food for sale at retail. Rather, the boxes and butcher paper
				  are used as decorations and gift wrapping for the carnival. The sales of the
				  white paper boxes and butcher paper to the carnival, therefore, are taxed at
				  retail as determined under section
				  237-4,
				  HRS, and section
				  18-237-4.
Example 5:
Taxpayer sells 10,000 promotional
				  plastic cups and cup lids to a snack bar and deli located in the XYZ Store,
				  which is a clothing and general merchandise retailer. The snack bar and deli
				  use 1,000 of the promotional cups and cup lids to serve beverages. The other
				  9,000 cups and cup lids, however, are used by the XYZ Store as gift wrapping
				  for the "XYZ Store" promotional t-shirts. "XYZ Store" t-shirts are sold gift
				  wrapped in the cups and cup lids.
The 1,000 cups and cup lids used to contain beverages are
				  critical elements. Cups and cup lids form nonreturnable beverage containers;
				  they are containers which are usually discarded after their initial use and
				  whose generally known and most common uses are to contain beverages for
				  delivery. The cups and cup lids also are necessary to contain beverages for
				  delivery by the XYZ Store. Lastly, the cups and cup lids are used to contain
				  beverages sold at retail. Sale of the 1,000 cups and cup lids to contain the
				  beverages sold by the snack bar and deli, therefore, is taxable as a sale at
				  wholesale.
The other 9,000 cups and cup lids also are critical elements
				  but are not used to contain beverages for sale at retail by XYZ Store. Rather,
				  the cups and cup lids are used as gift wrapping. The sale of the 9,000 cups and
				  cup lids which are used as gift wrapping, therefore, are taxed at retail as
				  determined under section
				  237-4,
				  HRS, and section
				  18-237-4.
(e) Except as provided in this section, the
				tax rate on the sale of food or beverage to an eating or drinking retailer
				shall be determined under section
				237-4,
				HRS, and section 18-237-4.
(f)
				Sales of food or beverage to an eating or drinking retailer which cooks,
				combines, or prepares the food or beverage for sale at retail shall be taxable
				as sales at wholesale.
Example:
Taxpayer sells uncooked hamburger
				  patties and buns to a hamburger stand. The hamburger stand cooks and prepares
				  hamburgers for sale at retail. Sales of the hamburger patties and buns to the
				  hamburger stand, therefore, are taxable as sales at wholesale.
(1) Sales of bulk containers of condiments to
				an eating or drinking retailer which cooks, combines, or prepares the bulk
				condiments for sale at retail shall be taxable as sales at wholesale.
Example:
Taxpayer sells bulk containers of
				  ketchup, mustard, salad dressing, and tartar sauce to an eating or drinking
				  retailer.
The eating or drinking retailer uses these condiments in the
				  cooking, combination, or preparation of food for sale at retail. Sales of these
				  bulk containers of condiments to the eating or drinking retailer, therefore,
				  are taxable as sales at wholesale.
(2)
				Sales of prepackaged single-serving packets of condiments to an eating or
				drinking retailer which prepares food or beverage for sale at retail shall be
				taxable as sales at retail; provided that if any prepackaged, single-serving
				condiment packets are resold by an eating or drinking retailer for a separate
				charge, then section 18-237-4(a)(1) shall control the determination of the tax
				rate.
Prepackaged single-serving condiment packets include salt,
				  pepper, ketchup, mustard, relish, croutons, bacon bits, sugar, sugar
				  substitutes, cream, cream substitutes, shoyu, spices, salad dressings, sauces,
				  pancake syrup, butter, butter substitutes, or the like.
Example:
Taxpayer sells lettuce, other
				  vegetables, and prepackaged single-serving condiment packets of croutons and
				  salad dressings to a grocery store. The grocery store prepares the lettuce and
				  other vegetables into salads for sale at retail to purchasers. There is no
				  separate charge for the prepackaged single-serving condiment packets of
				  croutons and salad dressings which accompany the salads.
Sales of lettuce and other vegetables to the grocery store
				  are taxable as sales at wholesale; the grocery store combines these items into
				  salads for sale at retail to purchasers. Conversely, sales of the prepackaged
				  single-serving condiment packets of croutons and salad dressings to the grocery
				  store are taxable as sales at retail; there is no separate charge for the
				  condiment packets.