HAR § 18-237-4-01.01 — Sales to eating or drinking retailers

(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 HRS §237-4(11) & (12) §18-237-4-01.01 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 §18-237-4-01.01 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.