1. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) American plan--The system used by hotels, rooming houses, and the like where one price covers room, food, and service.
   2. (2) Bulk vending machine--A coin-operated device that contains unsorted items and randomly dispenses goods in approximately equal amounts without selection of a particular item or type of item by the customer.
   3. (3) Candy--Confections such as candy bars, chewing gum, or candy kisses, but does not include products used exclusively for cooking, such as chocolate bits.
   4. (4) Caterer--A person engaged in the business of preparing and serving meals, drinks, or other food products at locations designated by a customer.
   5. (5) Food--All edible products intended for humans which products are consumed for taste, aroma, or nutritional value.

   6. (6) Food products.

      1. (A) Food products include items intended for human consumption. Examples include, but are not limited to: cereal and cereal products, milk and milk products, including ice cream, oleomargarine, meat and meat products, poultry products, fish and fish products, eggs and egg products, vegetables and vegetable products, fruit and fruit products, spices, condiments and salt, sugar products, coffee and coffee substitutes, tea, cocoa and cocoa products, canned foods, or any combination of these.

      2. (B) Food products do not include:

         1. (i) alcoholic beverages, carbonated and noncarbonated soft drinks, diluted juices, ice, candy, or medicines, tonics, vitamins, and medicinal preparations in any form. A substance will be treated as medicinal or as a tonic if the substance has no nutritional value, or the quantities of food elements in the substance are small and its contribution to any diet is small, or the substance has substantial nutritional value but the substance is marketed, labeled, and promoted to the public as being therapeutic; or
         2. (ii) food ready for immediate consumption.
   7. (7) Food service operator--Persons who operate restaurants and like places of business, caterers, wedding and bridal consultants, and others selling food ready for immediate consumption.
   8. (8) Mobile vendor--A person who sells food from a motor vehicle, push cart, or any other form of vehicle.

   9. (9) Food ready for immediate consumption.

      1. (A) Food ready for immediate consumption means the type of food, beverages, or meals normally prepared, served, or sold by restaurants, lunch counters, cafeterias, etc., which, when sold, require no further preparation prior to consumption.

      2. (B) When food is sold by a retailer who provides eating facilities (tables, trays, chairs, benches, or booths), food ready for immediate consumption also includes:

         1. (i) all food sold in a heated state;
         2. (ii) all food sold in individual-sized packages or portions when food heating facilities are available for customer use;
         3. (iii) all food sold with eating utensils provided, including plates, knives, forks, spoons, glasses, cups, or straws;
         4. (iv) all sandwiches ready for immediate consumption (examples of sandwiches ready for immediate consumption include most triangle-type sandwiches, whether or not refrigerated, such as ham, cheese, tuna, or chicken salad. An example of a sandwich not ready for immediate consumption would be a frozen sandwich or a sandwich with a frozen or a partially frozen filling);
         5. (v) all individual ice cream sundries; for example: ice cream cones, ice cream sandwiches, dishes, bars, sticks, specialties, or the like; however, ice cream sundries when sold in prepackaged units containing six or more such items are not included;
         6. (vi) all individual-sized portions of bakery products sold in quantities of five or less; and
         7. (vii) all food sold in individual-sized packages or portions requiring no further processing before consumption, when more than 75% of the retailer's gross sales on an outlet-by-outlet basis consist of sales of nonfood items and/or food sold in a heated state, with utensils provided, or in the form of sandwiches or individual ice cream sundries.

      3. (C) When food is sold by a retailer who does not provide eating facilities (tables, trays, chairs, benches, or booths), food ready for immediate consumption also includes:

         1. (i) all food sold in a heated state, when the food is heated by the retailer rather than the customer;
         2. (ii) all food sold with eating utensils provided, including plates, knives, forks, spoons, glasses, cups, or straws;
         3. (iii) all sandwiches ready for immediate consumption (examples of sandwiches ready for immediate consumption include most triangle-type sandwiches, whether or not refrigerated, such as ham, cheese, tuna, or chicken salad. An example of a sandwich not ready for immediate consumption would be a frozen sandwich or a sandwich with a frozen or partially frozen filling); and
         4. (iv) all individual ice cream sundries. For example: ice cream cones, ice cream sandwiches, dishes, bars, sticks, specialties, or the like; however, ice cream sundries sold in prepackaged units containing six or more such items are not included.
   10. (10) Retirement facility--A facility which provides permanent housing and residence to individuals, a majority of whom are 60 years of age or older.
   11. (11) Wedding or bridal consultant--A person who provides services other than or in addition to the preparation and serving of food at weddings. Such services may include sending invitations, providing floral arrangements, decorating, supervision, and cleanup.

2. (b) Taxable food sales. Tax is due on the sale of food, meals and drinks:

   1. (1) prepared, served, or sold ready for immediate consumption by any retailer whether the food is sold to be eaten on premises or to go;
   2. (2) sold through a vending machine;
   3. (3) prepared, sold, or served under the American plan. If the American plan is used by hotels, boarding houses, or other places of business, the charge for meals must be separated from the charges for room or lodging. If the charges for meals and lodging are not separately stated on the bill to the customer, hotel occupancy tax must be collected on the entire charge. If the lump-sum charge is not subject to hotel occupancy tax, sales tax must be collected on the portion of the charge attributable to the meals;
   4. (4) sold by universities, colleges, junior colleges, or other schools of higher learning;
   5. (5) prepared, sold, or served by caterers and wedding or bridal consultants. See subsection (f) of this section;
   6. (6) sold ready for immediate consumption by a mobile vendor;
   7. (7) sold by concession stands at ball parks, recreation halls, gymnasiums, and other like places of business, or served to a person seated in a stadium witnessing a sporting event;
   8. (8) purchased ready for immediate consumption by a common carrier for the purpose of serving passengers traveling en route aboard the carrier; or
   9. (9) sold to a person confined in a correctional facility operated under the authority or jurisdiction of or under contract with this state or a political subdivision of the state. This does not include meals provided by the correctional facility at no cost to the inmates as part of their incarceration.

3. (c) Exempt sales.

   1. (1) Food not ready for immediate consumption.

   2. (2) Food sales by schools, school-associated groups, and state institutions. For the purposes of this paragraph, food includes soft drinks and candy but does not include alcoholic beverages. Tax is not due on the sale of food when:

      1. (A) sold by religious organizations or sold at religious functions conducted under the authority of a particular religious organization;
      2. (B) sold or served by public or private schools, school districts, student organizations, or parent-teacher associations in an elementary or secondary school during the regular school day pursuant to an agreement with the proper school authorities;
      3. (C) sold or served by a parent-teacher association during a fund-raising sale, the proceeds of which do not go to the benefit of an individual;
      4. (D) sold by a person under 19 years of age who is a member of a nonprofit organization devoted to the exclusive purpose of education, physical, or religious training, and groups associated with public or private elementary or secondary schools as a part of a fund-raising drive sponsored by the organization for its exclusive use;
      5. (E) served to students, residents, or patients of hospitals, day care centers, summer camps, and other institutions licensed by the state for the care of human beings. However, meals served to visitors or employees of these establishments are taxable;
      6. (F) served to permanent residents of a retirement facility at the retirement facility. Meals served to visitors or employees of the facility are taxable; or
      7. (G) provided at no cost to inmates by correctional facilities as part of the inmates' incarceration.
   3. (3) Items purchased with food coupons under the food stamp program operated under 7 United States Code, Chapter 51.

4. (d) Mobile vendors.

   1. (1) A person who supplies food to a mobile vendor may be required to remit the tax due on the retail sale of these products. The Tax Code, §151.024, authorizes the comptroller to regard a supplier as a retailer and a mobile vendor as an agent for these sales.
   2. (2) After the supplier has been notified by the comptroller that the mobile vendor will be regarded as an agent of the supplier, the amount of tax to be remitted to the comptroller will be computed by adding to the supplier's sales price the amount of markup the mobile vendor will apply when the food is sold at retail and multiplying this sum by the applicable tax rate.
   3. (3) For reporting and auditing purposes, a 20% markup will be applied to a supplier's sales price to a mobile vendor unless the comptroller notifies an individual taxpayer in writing that a higher percentage of markup should be used to report these sales.

5. (e) Subsidies; employee meals; free meals.

   1. (1) Meals furnished by food service operators to employees immediately prior, during, or immediately after a shift, which are provided for the convenience of the food service operator, are not taxable.
   2. (2) An employer is not liable for tax on the amount of any subsidy paid to a food service operator unless the subsidy is specifically contingent on, or included in, the sales price for meals served to employees or guests, or is the total consideration paid for the meals.
   3. (3) Meals and beverages furnished to customers free of charge as promotional items are taxable to a restaurant owner only to the extent tax would have been due on the original purchase price of the food or drinks from suppliers.
   4. (4) When the restaurant owner, for promotional purposes, sells two meals for the price of one meal, sales tax should be collected only on the amount charged. Sales tax should not be collected on the "free" meal.

6. (f) Responsibilities of persons who operate restaurants and like places of business, caterers, wedding or bridal consultants, and others selling food ready for immediate consumption (food service operators).

   1. (1) Food service operators must collect tax on all sales of food ready for immediate consumption.
   2. (2) A food service operator selling both food products and food ready for immediate consumption will be allowed to report tax on only food sold ready for immediate consumption if the records clearly identify, through methods such as sales invoices, or cash register coding, nontaxable and taxable food sales.
   3. (3) Operators of eating establishments, caterers, wedding or bridal consultants, and other food service operators must pay the tax on the purchase of all equipment and replacement parts for equipment used to provide the food service. Examples of supply items and equipment taxable to the operator include, but are not limited to, tables, chairs, place mats, tablecloths, cloth napkins, silverware, dishes, cooking utensils, dispensers, garbage can liners, mop holders, lime squeezers, grill bricks, aprons, glass creamers, appliances, menus, and inserts.
   4. (4) Operators of eating establishments, caterers, wedding or bridal consultants, and other food service operators may purchase on resale or exemption certificates those items which are furnished to their customers with the food or beverages. These items must be of a nonreusable nature or qualify for exemption as wrapping or packaging materials. Examples include nonreusable paper, wooden, plastic, and aluminum articles. Other items included are cake boxes, lunch boxes, cups (paper, plastic, or styrofoam), paper and plastic containers, bottle wraps, butter chip trays, paper dishes, knives, forks, spoons, paper napkins, soda straws, toothpicks, french fry bags, stir sticks, ice cream sticks, souffle cups, hot dog trays, and other types of nonreusable trays.
   5. (5) Tax is due on any charge made for preparing and serving the meals and food. The sales price of meals and food includes any separately stated charge for the use by a customer of items such as tables, chairs, tableware, and tablecloths. The separately stated charge for the use of these items is not considered a rental of the items to a customer but an expense connected with the sale of the meals or food products.
   6. (6) Sales tax is due on the transfer to the customer of any taxable item, such as flowers, invitations, decorations, etc., which become the property of the customer.
   7. (7) Sales or use tax is not due on ice purchased for use as a part of a drink or food product to be sold in the regular course of business. Ice used to maintain food for immediate consumption in a cool state prior to sale is taxable.
   8. (8) For information on tips and gratuities see §3.337 of this title (relating to Gratuities).
   9. (9) For information on the responsibilities of persons who sell and serve mixed beverages see §3.289 of this title (relating to Alcoholic Beverages Exemptions).

7. (g) Food sales through vending machine.

   1. (1) With the exceptions of soft drinks and candy, vending machine operators must report sales tax on 50% of the total gross receipts from sales of all food. No deduction will be allowed for spoilage, waste, or other loss of foods.
   2. (2) Vending machine operators must pay sales tax on the total gross receipts from sales of soft drinks and candy except as provided in paragraph (3) of this subsection. Vending machine operators who include the tax in the sales price of food, soft drinks, and candy should refer to §3.328 of this title (relating to Optional Reporting Methods for Grocers and Other Vendors).
   3. (3) No tax is due on the sale of food, gum, or candy for $.25 or less from a bulk vending machine.
8. (h) Rounding off tax due. The practice of rounding off the amount of tax due on the sale of a taxable item is prohibited. Tax must be added to the sales price by using the formula prescribed in the Tax Code.
9. (i) When a package contains both food products and taxable items the application of the tax depends upon the essential character of the complete package. If the taxable items are the primary component of the package and a single charge is made, the entire sales price of the package is taxable. If the taxable items are not the primary component of the package, the entire sale is exempt unless a separate charge is made for the taxable items, in which case the separate charge is subject to tax. In cases where no charge is made for the taxable items, these items are promotional items not purchased for resale by the person preparing the package. The person who provided the promotional items is liable for the tax based upon the cost of the item.

Source Note:The provisions of this §3.293 adopted to be effective January 1, 1976; amended to be effective October 6, 1977, 2 TexReg 3666; amended to be effective September 1, 1981, 6 TexReg 3175; amended to be effective March 13, 1985, 10 TexReg 693; amended to be effective May 31, 1988, 13 TexReg 2318; amended to be effective August 10, 1990, 15 TexReg 4318; amended to be effective November 29, 1991, 16 TexReg 6691; amended to be effective April 3, 1996, 21 TexReg 2472; amended to be effective December 6, 1996, 21 TexReg 11498.