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Food and Food Ingredients

Food and food ingredients are exempt from sales tax. Food and food ingredients are substances that are:

• In liquid, concentrated, solid, frozen, dried, or dehydrated form  
• Sold for ingestion or chewing by humans  
• Consumed for its taste or nutritional value

Nontaxable Food and Food Ingredients

The following items are generally exempt. However, if any of these items are prepared by the seller or sold with eating utensils provided by the seller, they are taxable. See Prepared Food.

Taxable Sales

Candy, soft drinks, alcoholic beverages, prepared food, dietary supplements, and food sold through vending machines are taxable. These items do not qualify for the food and food ingredients exemption.  

Following is a list of items that are taxable.

Tobacco Products

Tobacco products are taxable, except cigarettes, which are not taxed at retail.

Cannabis and Hemp Products

Cannabis and hemp products are taxable. See the Cannabis Guide.

Gift Baskets and Other Combination Packages

When a gift basket or other combination package (bundled transaction) includes food and food ingredients special rules apply and they determine if the sale is taxable. The sale is taxable if either:

• The seller’s purchase price of the taxable items in the transaction is more than 50% of the total purchase price of all of the items in the transaction
• The seller’s sales price of the taxable items in the transaction is more than 50% of the total sales price of the transaction.

Sellers cannot use a combination of the purchase price and sales price when making the 50% determination for a transaction.

Use tax is due on the seller’s cost of taxable items included in the bundle if both:

• The retail sale of the bundled transaction is not taxable
• The seller’s purchase price of all taxable items in the bundled transaction is more than $100

Examples of Bundled Transactions

Example 1 – Nontaxable Sale, No Use Tax Due

A grocery store assembles and sells fruit baskets:  

• The store purchases each basket for $5 and puts a variety of fruit into each basket that cost the store $7  
• Each fruit basket is sold for $20  

The fruit baskets are not taxable because the taxable item (the basket) costs less than 50% of the total purchase price of all the items in the transaction. The store does not owe use tax because the store’s purchase price of the basket is less than $100.  

Example 2 – Taxable Sale

A children’s store makes gift packages for new parents:  

• The gift package sells for $300 and includes baby formula, nontaxable baby items, a baby monitor, and a car seat  
• The transaction qualifies for the 50% test because baby formula is a food or food ingredient  
• The store’s purchase price of the nontaxable items in the gift package is less than 50% of the total purchase price of all the items in the package  

The sale of the gift package is taxable. Since the retail sale is taxable, the store does not owe use tax on the taxable items included in the gift package.

Example 3 – Nontaxable Sale, Use Tax Due

A children’s store makes gift packages for new parents:  

• The gift package sells for $300 and includes baby formula, nontaxable baby items, a baby monitor, and a car seat  
• The transaction qualifies for the 50% test because baby formula is a food or food ingredient  
• The store’s purchase price of the taxable items in the gift package is less than 50% of the total purchase price of all the items in the package
• The cost of the taxable items in the package is more than $100  

The sale of the gift package is not taxable, but the store owes use tax on their cost of all taxable items included in the gift package.

Legal References and Resources

Minnesota Statutes

• 297A.61, Definitions
  • subd. 3(d), Sale and purchase
  • subd. 31, Prepared food  
  • subd. 32, Soft drinks  
  • subd. 33, Candy
  • subd. 34, Food sold through vending machines
  • subd. 38, Bundled transaction
• 297A.63, subd. 1(d), Use of tangible personal property or taxable services
• 297A.67, General Exemptions
  • subd. 2, Food and food ingredients
  • subd. 32, Cigarettes

Minnesota Rules

• 8130.4700, Prepared Food, Candy, and Soft Drinks
• 8130.4705, Food Sold with Eating Utensils

Publications

• Candy
• Cannabis Guide
• Dietary Supplements
• Eating Establishments
• Local Sales and Use Taxes
• Prepared Food
• Sales and Use Tax Business Guide
• Soft Drinks and Other Beverages
• Supplemental Nutrition Assistance Program (SNAP)
• Vending Machines and Other Coin-Operated Devices