Or. Admin. Code § 150-317-1140

Current through Register Vol. 64, No. 1, January 1, 2025

Section 150-317-1140 - Wholesale Sale of Groceries Exclusion

(1)Definitions.

(a) "Processing" means transforming or changing the physical characteristics of an item, including incorporation or consumption of an item as an ingredient or component in the production or manufacture of another item. "Processing" includes activities such as (but not limited to): baking, canning, churning, cooking, concentrating, cutting, dehydrating, drying, extracting, freezing, heating, grinding, mixing, pasteurizing, preserving, or otherwise altering, manufacturing, or producing an item. For purposes of this rule, "processing" does not include activities conducted by a retail store in assembling, cleaning, preparing, storing, handling or displaying groceries for retail sale to the final consumer for home consumption. Retail store activities such as preparing filleted or gutted fish, produce trimming, and processed meat and cheese slicing, are not processing as defined in this rule, provided that such activities are conducted by a retail store as part of the services they offer to their customers.

(b) "Store" for purposes of this rule, refers to the location from which a taxpayer sells goods at retail to the final consumer for home consumption. "Store" includes both physical locations and online storefronts.

(c) "Wholesale sale" is the sale of goods to a purchaser for the purpose of resale without further processing in the regular course of the purchaser's trade or business. A wholesale sale of groceries, for purposes of the exclusion in ORS 317A.100(1)(b)(EE), may be determined by using factors such as (but not limited to):

(A) The sale is of grocery items in a quantity usable for resale, or materially in excess of the total quantity of goods that are, on average, purchased by a member of the consuming public.

(B) The items are sold at a discounted price from the fair market value of the items if sold at retail.

(C) The sale is made to another business entity.

(2) The list of factors in sections (1)(c)(A) through (1)(c)(C) are nonexclusive. The factors will be considered based on facts and circumstances and only to the extent that they are relevant. The department may consider any other relevant factors and circumstances.

(3)Excludable Receipts from Wholesale Sales. A person may exclude receipts realized from the wholesale sale of groceries, as that term is defined in ORS 317A.100(8), provided that the sales transaction meets the following requirements:

(a) The transaction is a wholesale sale;

(b) The items sold in the transaction are food or food products that meet the definition of groceries, in a form that may be resold to the final consumer for home consumption without processing;

(c) The sale is made for the purpose of reselling the groceries to the final consumer for home consumption; and

(d) The wholesale seller obtains written verification from the purchaser that the purchased groceries will be resold without processing, by a store that typically sells groceries to the final consumer for home consumption.

(4)Documentation Required for Verification. A wholesale seller must retain sufficient documentation to demonstrate the requirements in section (3) have been met. Any document may serve as verification, provided that it contains the following information:

(a) The purchaser's name and address;

(b) The date of the purchase, the item(s) purchased, and the amount purchased; and

(c) Verification from the purchaser of the amount of the purchase that will be resold, without processing, to the final consumer for home consumption.

(5)Safe Harbor for Wholesale Sales. A wholesale seller is not required to obtain separate verification from the purchaser if:

(a)

(A) The purchaser is a qualified Supplemental Nutrition Assistance Program (SNAP) retailer with a current permit to accept SNAP benefits issued by the U.S. Department of Agriculture; or

(B) The purchaser is a store that meets the definition of a retail food store for purposes of the SNAP under 7 U.S.C. 2012(o)(1), (2), (4) or (5); and

(b) The purchase was made for the purpose of resale of groceries, without further processing, at a store that meets the requirement in subsection (a). The wholesale seller must retain sufficient documentation to demonstrate that the sale was made to a store that meets the requirements in subsection (a).

(6)Examples.

Example 1: Braddock Wholesale LLC purchases prepackaged frozen vegetables and meals and sells the items, without processing the purchased items in any way, to their customers. One of Braddock's customers, Harris Grocery, has six stores located throughout the state. All six Harris stores are authorized as retail food stores under 7 U.S.C. 2012(o)(1) with a current permit to accept SNAP benefits. Braddock sells prepackaged frozen vegetables and frozen meals to Harris Grocery. Under the terms of the sales agreement, Braddock delivers 1,000 frozen meals and 5,000 10-ounce packages of frozen broccoli directly to each Harris store. Braddock retains records of the sales contracts documenting that the items sold were groceries in a form that may be resold to consumers for home consumption without further processing, and that Braddock delivered the purchased groceries directly to a store that is authorized as a retail food store under 7 U.S.C. 2012(o)(1). The sales contract, with the information specified above, is sufficient to verify that the receipts from the wholesale sales transaction are excludable under ORS 317A.100(1)(b)(EE).

Example 2: Assume the same facts in Example 1, except that Braddock's customer is Columbia Cupboards LLC (Columbia). Columbia has three stores located across the state. None of Columbia's stores are qualified SNAP retail food stores with a current permit to accept SNAP benefits issued by the U.S. Department of Agriculture. However, Columbia verifies that all three stores meet the requirements under 7 U.S.C. 2012(o)(1). Under the terms of the sales agreement between Braddock Wholesale and Columbia Cupboards LLC, Braddock delivers 1,000 frozen meals directly to each of Columbia's three stores. Braddock retains records of the sales agreement documenting that the items sold were groceries in a form that may be resold to consumers for home consumption without further processing, and that Braddock delivered the purchased groceries directly to a store that meets the requirements in 7 U.S.C. 2012(o)(1). The sales agreement, with the information specified above, verifies that the receipts from the wholesale sales transaction are excludable under ORS 317A.100(1)(b)(EE).

Example 3: Assume the same facts as Example 1, except that Braddock's customer is Foxtrot Airlines. Foxtrot Airlines purchases 5,000 frozen meals from Braddock. The meals will be heated and served to the airline's customers during flights. Because Foxtrot Airlines will process (heat) the frozen meals before the meals are served to its passengers, and because Foxtrot Airlines does not typically sell directly to the final consumer for home consumption, Braddock cannot exclude the receipts from the transaction as a wholesale sale of groceries. Braddock will include the receipts from the sale to Foxtrot Airlines as commercial activity.

Example 4: Assume the same facts as Example 1, except that Braddock's customer is Farragut Corporation. Farragut Corporation operates 144 grocery stores across the state, under the name Good Grocery. All Good Grocery stores are authorized as retail food stores under 7 U.S.C. 2012(o)(1) with a current permit to accept SNAP benefits. In addition, Farragut Corporation has fifty separately located restaurants operating under the name Greenbelt Diner. Farragut Corporation purchases 400,000 10-ounce packages of frozen broccoli and 100,000 5.5 pound packages of frozen broccoli from Braddock. Under the terms of the sales agreement, all of the items are delivered to a centralized warehouse owned by Farragut Corporation. Farragut will then distribute the prepackaged broccoli as needed to their grocery stores and restaurants. The prepackaged frozen broccoli is in a form that may be resold to the final consumer for home consumption without further processing. However, Braddock cannot reasonably determine whether the prepackaged frozen broccoli, after being delivered, will be sold at Farragut's Good Grocery stores which typically sell groceries to consumers for home consumption, or used by Farragut's Greenbelt Diners, where the broccoli will be cooked and incorporated as an ingredient in hot meals served to patrons. Braddock obtains written verification from Farragut Corporation, who certifies that of the 500,000 packages of frozen broccoli purchased, the 400,000 10-ounce packages will be sold in Farragut's Good Grocery stores, which are authorized as retail food stores under 7 U.S.C. 2012(o)(1), and the 100,000 5.5 pound packages will be used by Farragut's Greenbelt Diners. Braddock may exclude from commercial activity the receipts from the sale of 400,000 packages of frozen broccoli as receipts from the wholesale sale of groceries excluded under ORS 317A.100(1)(b)(EE). Braddock must include in commercial activity its receipts from the sale of 100,000 5.5 pound packages of frozen broccoli that will be used by Farragut's Greenbelt Diners.

Example 5: Largo Cereals LLC manufactures cold, ready-to-eat breakfast cereal. Largo markets their cereals directly to the home consumer through targeted advertising campaigns, and packages their cereal in branded, 30-ounce boxes. Largo sells the ready-to-eat packaged cereal to retailers, distributers, and wholesalers, including Braddock Wholesale. Under the terms of the sales agreement, Largo sells 10,000 branded 30-ounce boxes of breakfast cereal to Braddock Wholesale. The sales agreement specifically states that the purchaser (Braddock) will resell the 30-ounce boxes of cereal, without further processing. Based on the circumstances of the sale and the condition of the item, Largo and Braddock reasonably expect that the cereal will ultimately be sold to the final consumer for home consumption. The sales agreement, with the information specified above, verifies that the receipts from the wholesale sales transaction are excludable under ORS 317A.100(1)(b)(EE).

Or. Admin. Code § 150-317-1140

REV 2-2020, temporary adopt filed 01/27/2020, effective 2/1/2020 through 7/29/2020; REV 13-2020, adopt filed 07/24/2020, effective 7/29/2020

Publications: Contact the Oregon Department of Revenue for information about how to obtain a copy of the publication referred to or incorporated by reference in this rule pursuant to ORS 183.360(2) and ORS 183.355(1)(b).

Statutory/Other Authority: ORS 305.100 & 317A.143

Statutes/Other Implemented: ORS 317A.100(1)(b)(EE) and (8)