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SALES TAX: THE ROAD TO SIMPLIFICATION?

May 25, 2004

Some folks believe a national sales tax would bring great simplification to our tax lives. This policy letter to the Iowa Grocers Association might give them pause:

   May 10, 2004  
   Iowa Grocer’s Association  

   Your e-mail to Wayne Cooper regarding the 
   taxability of certain food products has been 
   forwarded to me for reply.  Based on your 
   e-mail, you wish to know the following:  

   1.  Is tea and flavored tea subject to Iowa 
   sales/use tax?  

   Tea is a beverage that is not subject to 
   Iowa sales tax.  However, if the tea is 
   flavored with fruit juice and it contains less 
   than 15% fruit juice, then it is subject to 
   tax.  If it contains 15% or more fruit juice, 
   then the tea would be exempt from Iowa 
   tax.  

   2.  Is Bertolli Vodka Sauce that is a pasta 
   sauce and lists vodka as the fifth ingredient 
   on the label subject to Iowa sales or use 
   tax?  

   Yes it is.  All foods with alcohol content are 
   prohibited from being purchased with 
   federal food stamps.  Consequently, any 
   food that contains alcohol, regardless of the 
   percentage of content, is subject to Iowa 
   sales or use tax.   

   3.  Are dairy drinks that have less than 15% 
   juice (such as smoothie type drinks) subject 
   to Iowa sales or use tax?  

   Pursuant to department rule 701 IAC 20.1(3),
   nontaxable beverages consist of tea, coffee, 
   beverages that contain primary dairy 
   products, or dairy ingredient bases, and 
   beverages that contain natural fruit or 
   vegetable juice of 15 percent or more by 
   volume.  However, these and similar 
   beverages are taxable if sold as prepared 
   food and drink under subrule 701 IAC 20.5(2).  
   Normally, a dairy based drink is exempt.  
   However, by adding fruit juice, this makes it 
   taxable since it cannot meet the 15% fruit 
   juice requirement.  

   4.  Is Starbucks bottled coffee considered 
   to be nontaxable as coffee?  

   Yes.  As stated in 701 IAC 20.1(3) and set 
   forth in the answer to question three, coffee 
   is a nontaxable beverage in Iowa.  

   5.  Is Aloe Vera Juice that is for human 
   consumption and is 99.8% aloe vera subject
   to Iowa sales or use tax?  

   In other policy letters, aloe vera products 
   such as pills and gels were stated to be 
   taxable as health aids.  However, what is 
   at issue here is a juice from the aloe vera 
   plant.   The aloe vera plant is considered to 
   be a vegetable plant.  Consequently, since 
   the content of this product is over the 15% 
   juice requirement for exemption, this product 
   is exempt from Iowa sales or use tax.  

   I hope this information is of assistance to 
   you.  Please be advised that this letter is 
   an informal opinion and does not bind the 
   Department in any future action.  If you 
   have any additional questions regarding 
   this matter, please do not hesitate to 
   contact me. 

   Sincerely,  
   Jerri M.K. DeVries  
   Policy Section  
 

The best part is the last paragraph, where the Department says that it can change its mind at any time. This, of course, isn't news to anybody who has dealt with sales tax examiners.

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