Rulings of the Tax Commissioner

November 17, 2000


Re: Request for Ruling: Retail Sales and Use Tax


Dear ****

This will reply to your letter in which you request a ruling on behalf of your client, (the "Taxpayer"), with respect to the proper sales and use tax treatment to a specific product sold in Virginia. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer, an out-of-state business, sells oxygen-enriched water to customers through distributors in Virginia. The Taxpayer's product is sold in liter bottles, and is intended to be mixed with pure water or juice for human consumption. The Taxpayer questions whether the sale of its product is taxable in Virginia, and if so, is the product taxed at the 4 1/2% sales tax rate or at the reduced sales tax rate.

RULING

Food Tax Reduction Program

Code of Virginia § 58.1-611.1 (copy enclosed) established the Food Tax Reduction Program, which reduces the state sales and use tax rate on food purchased for human consumption by 1/2% each year over a four-year period. Effective January 1, 2000, the state sales tax rate was reduced by 1/2%. The rate is scheduled to be reduced by 1/2% on April 1, 2001, April 1, 2002, and April 1, 2003, provided certain revenue growth occurs.

The reduced sales tax rate applies to foods and beverages that qualify as "food for home consumption" as defined under the federal Food Stamp Program. This includes most staple grocery food items and cold prepared foods packaged for home consumption. Specifically excluded from the definition of food for home consumption are alcoholic beverages, tobacco, and prepared hot foods sold for immediate consumption.

The department has issued Virginia Tax Bulletin 99-11 (10/1/99), which explains the Food Tax Reduction Program and discusses in detail foods that qualify for the reduced sales tax rate. Based on the information provided, oxygen-enriched water is considered an "accessory food" item for home consumption and qualifies for the reduced sales tax rate. Therefore, the Taxpayer must collect the reduced sales tax rate (currently 4%) on all bottles of oxygen-enriched water sold in Virginia.

I trust this responds to your request. If you have any questions, you may contact * * * in the department's Office of Tax Policy at * * *




Danny M. Payne
Tax Commissioner