The Alabama Court of Civil Appeals recently ruled that a taxpayer that sold disposable cutlery and tableware to fast food restaurants did not have to collect sales tax.
The taxpayer sold straws, stirrers, napkins, moist towelettes, wood skewers, plastic utensils, and similar items to various fast food restaurants. The restaurants provided these items to their customers along with food or drink items.
Alabama taxes retail sales of tangible personal property. Retail sales do not include wholesale sales. Wholesale sales include sales to retailers for resale. Sales to retailers for consumption or use are not wholesale sales.
The Court ruled that because the fast food restaurants were retailers of prepared food, the taxpayer's sales were not subject to tax. The Court reasoned that the sale of prepared food included the sale of the disposable cutlery and tableware that went with the food. The taxpayer's sales were thus wholesale sales and not subject to tax.