Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 237 - GENERAL EXCISE TAX LAW
Subchapter 1 - DEFINITIONS; ADMINISTRATION
Section 18-237-4-01.01 - Sales to eating or drinking retailers
Current through August, 2024
(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 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 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.
Even though the boxes and butcher paper are critical elements (i.e., the boxes and butcher paper are nonreturnable food containers and packaging; they are containers and packaging which are usually discarded after their initial use and whose generally known and most common uses are to contain food for delivery; and the boxes and butcher paper also are necessary to contain food for delivery by an eating or drinking retailer), they are not used to contain food for sale at retail. Rather, the boxes and butcher paper are used as decorations and gift wrapping for the carnival. The sales of the white paper boxes and butcher paper to the carnival, therefore, are taxed at retail as determined under section 237-4, HRS, and section 18-237-4.
Example 5: Taxpayer sells 10,000 promotional plastic cups and cup lids to a snack bar and deli located in the XYZ Store, which is a clothing and general merchandise retailer. The snack bar and deli use 1,000 of the promotional cups and cup lids to serve beverages. The other 9,000 cups and cup lids, however, are used by the XYZ Store as gift wrapping for the "XYZ Store" promotional t-shirts. "XYZ Store" t-shirts are sold gift wrapped in the cups and cup lids.
The 1,000 cups and cup lids used to contain beverages are critical elements. Cups and cup lids form nonreturnable beverage containers; they are containers which are usually discarded after their initial use and whose generally known and most common uses are to contain beverages for delivery. The cups and cup lids also are necessary to contain beverages for delivery by the XYZ Store. Lastly, the cups and cup lids are used to contain beverages sold at retail. Sale of the 1,000 cups and cup lids to contain the beverages sold by the snack bar and deli, therefore, is taxable as a sale at wholesale.
The other 9,000 cups and cup lids also are critical elements but are not used to contain beverages for sale at retail by XYZ Store. Rather, the cups and cup lids are used as gift wrapping. The sale of the 9,000 cups and cup lids which are used as gift wrapping, therefore, are taxed at retail as determined under section 237-4, HRS, and section 18-237-4.
(e) Except as provided in this section, the tax rate on the sale of food or beverage to an eating or drinking retailer shall be determined under section 237-4, HRS, and section 18-237-4.
(f) Sales of food or beverage to an eating or drinking retailer which cooks, combines, or prepares the food or beverage for sale at retail shall be taxable as sales at wholesale.
Example: Taxpayer sells uncooked hamburger patties and buns to a hamburger stand. The hamburger stand cooks and prepares hamburgers for sale at retail. Sales of the hamburger patties and buns to the hamburger stand, therefore, are taxable as sales at wholesale.
Example: Taxpayer sells bulk containers of ketchup, mustard, salad dressing, and tartar sauce to an eating or drinking retailer.
The eating or drinking retailer uses these condiments in the cooking, combination, or preparation of food for sale at retail. Sales of these bulk containers of condiments to the eating or drinking retailer, therefore, are taxable as sales at wholesale.
Prepackaged single-serving condiment packets include salt, pepper, ketchup, mustard, relish, croutons, bacon bits, sugar, sugar substitutes, cream, cream substitutes, shoyu, spices, salad dressings, sauces, pancake syrup, butter, butter substitutes, or the like.
Example: Taxpayer sells lettuce, other vegetables, and prepackaged single-serving condiment packets of croutons and salad dressings to a grocery store. The grocery store prepares the lettuce and other vegetables into salads for sale at retail to purchasers. There is no separate charge for the prepackaged single-serving condiment packets of croutons and salad dressings which accompany the salads.
Sales of lettuce and other vegetables to the grocery store are taxable as sales at wholesale; the grocery store combines these items into salads for sale at retail to purchasers. Conversely, sales of the prepackaged single-serving condiment packets of croutons and salad dressings to the grocery store are taxable as sales at retail; there is no separate charge for the condiment packets.
