Tennessee: Guidance Issued on Sales Tax Holiday for Prepared Food and Food Ingredients

Legislation was recently signed into law in Tennessee that adopts a new sales tax holiday that will take place from July 30 to August 5. During this period, purchases of food, food ingredients, and prepared food products will be exempt from sales tax.  Under Tennessee law, “food and food ingredients” are broadly defined to include substances that are consumed by individuals for their taste or nutritional value and are typically sold by grocery stores. Items that are excluded from the definition of “food and food ingredients” and which will remain taxable during the holiday are alcoholic beverages, tobacco, candy, and dietary supplements.

“Prepared food” products are also exempt during the holiday. An item is considered “prepared food” if it meets one of the following conditions: (1) the item is sold in a heated state or is heated by the seller; (2) the item contains two or more ingredients mixed together by the seller for sale as a single item; or (3) the seller provides eating utensils such as plates, forks, spoons, cups, or straws, along with the item. Prepared food products are typically sold by restaurants.

Food, food ingredients, and prepared food purchased prior to the holiday period that are received by the purchaser during the holiday period are likewise exempt.  For example, if a consumer pays a caterer prior to July 30, but receives the food from the caterer during the week of July 30 to August 5, then the sale would be exempt from tax. If payment is made for food, food ingredients, or prepared food during the holiday period, but the delivery occurs outside the holiday period, then this sale would remain taxable.  Recent guidance issued by the Commissioner provides details on reporting exempt sales. For additional questions about Tennessee’s sales tax holiday, please contact Justin Stringfield.