Earlier this year, the Oklahoma Legislature enacted legislation to exempt the sale of groceries from the state sales tax. HB 1955 reduces the state sales tax rate for the sale of “food and food ingredients” from 4.5% to 0%, effective August 29, 2024. The sale of food and food ingredients remains subject to all municipal and county sales taxes.

The sale of prepared food, alcoholic beverages, dietary supplements, tobacco, and marijuana products are not included within the definition of food and food ingredients, but bottled water, candy, and soft drinks are included in the state tax exemption. The bill defines “prepared food” to mean:

1. food sold in a heated state or that is heated by the seller,
2. two or more food ingredients mixed or combined by the seller for sale as a single item, or
3. food sold with eating utensils provided by the seller, including plates, knives, forks, spoons, glasses, cups, napkins, or straws.

The Oklahoma Tax Commission promulgated emergency rules on June 4, 2024, which provide specific guidelines for sellers of food and prepared food. The rules follow the passage of SB 1283, which added definitions related to the distinction between sales of exempt food versus taxable prepared food. The rules are pending approval by the Governor.

Under the emergency rules, prepared food is described as food “intended for immediate consumption and is prepared to a point generally accepted as ready to be eaten without further preparation.” The rules provide guidelines on food that is sold under any of the criteria provided in the statutory definition to qualify the sale as a taxable sale of prepared food. The most detailed criteria to work through is the determination of whether the food is sold “with eating utensils.”

The emergency rules provide that food is considered “sold with an eating utensil provided by the seller when the food is intended for consumption with the utensil provided.” However, the rules differ based on whether the percentage of prepared food sold by the seller is greater than 75% of the seller’s total sales (as calculated under the rules). Food is considered sold with utensils by sellers whose prepared food sales percentage is 75% or less if the seller’s business practice is to physically hand utensils to purchasers. Food is considered sold with utensils by sellers whose prepared food sales percentage is greater than 75% if the seller physically hands the utensils to the purchaser or makes the utensils available to its customers at a self-service station.

Sellers of food and prepared food should consult with tax professionals to confirm that they are applying the correct sales tax treatment to their sales.