Costco does charge tax on some food, but not most of it. The register follows state and local tax law, not a Costco policy, and those laws exempt basic grocery staples in most states while taxing a predictable short list: prepared food from the deli or food court, candy, soft drinks, dietary supplements, and alcohol.
What Rings Up Tax-Free
Most states separate food you take home to cook from food that’s ready to eat. Unprepared staples like flour, eggs, raw meat, frozen vegetables, cereal, and canned goods are exempt from state sales tax in the majority of states. Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) have no sales tax at all, so the question doesn’t come up for shoppers there. A shrinking group of states still taxes groceries, either at a reduced rate or the full rate.
Local tax is the catch. Even in states that fully exempt grocery food, counties, cities, and school districts can add their own sales tax on top. A bag of rice might be free of state tax and still carry a 1% or 2% local levy. Two Costco warehouses 20 miles apart in the same state can charge different tax amounts on identical groceries because they sit in different local jurisdictions.
Prepared Food and the Rotisserie Chicken Problem
This is where shoppers get surprised. The rotisserie chicken and the food court hot dog are almost certainly taxed, even though raw chicken breasts from the meat case are not. Cooking changed the tax classification.
More than 20 states follow the “prepared food” definition from the Streamlined Sales and Use Tax Agreement, and most others use something similar. Food counts as prepared, and therefore taxable, when any of these apply:
- It is sold heated, meaning at any temperature higher than the surrounding air when you get it.
- It is sold with utensils provided by the seller, such as forks, spoons, napkins, or straws.
- Two or more ingredients are mixed by the seller and sold as a single item.
The temperature rule catches the rotisserie chicken. Anything sold hotter than room temperature qualifies as heated food, and heated food is taxable.1Streamlined Sales Tax Governing Board. Food Definition Issues A frozen chicken from the freezer case and a rotisserie chicken from the warming case are the same bird, but one is tax-exempt grocery food and the other is taxable prepared food.
The utensils rule catches food court items. When Costco hands you a fork with your chicken bake or a straw with your smoothie, the food meets the prepared food definition regardless of temperature.1Streamlined Sales Tax Governing Board. Food Definition Issues
Candy, Soft Drinks, and Supplements
These three categories get carved out of the grocery exemption in many states, meaning they’re taxed at the full rate even when basic food is exempt. The Streamlined Sales and Use Tax Agreement lets states exclude candy, soft drinks, and dietary supplements from the definition of tax-exempt food, and most states with grocery exemptions do exactly that.2Alaska Remote Sellers Sales Tax Commission. SSUTA Definitions – Article I
Candy
Candy has a specific legal definition: a preparation of sugar or other sweeteners combined with chocolate, fruits, nuts, or other ingredients in the form of bars, drops, or pieces. Any product containing flour is excluded from the candy category.3Streamlined Sales Tax Governing Board. Candy Definition – Toggle for Exclusion of Certain Products That flour exception produces odd results. A Twix bar has a cookie layer made with flour, so it may be classified as tax-exempt grocery food. A Snickers bar has no flour, so it’s taxable candy. The distinction has nothing to do with nutrition; it’s whether flour appears in the ingredient list.
Soft Drinks
Soft drinks include any nonalcoholic beverage containing natural or artificial sweeteners.2Alaska Remote Sellers Sales Tax Commission. SSUTA Definitions – Article I Soda, sweetened iced tea, sports drinks, and energy drinks all fall in. Plain water, unsweetened coffee and tea, and 100% juice with no added sweeteners generally do not qualify as soft drinks and stay exempt. A handful of cities also impose separate excise taxes on sweetened beverages, typically one to two cents per ounce, charged to distributors but usually passed through to the shelf price.
Dietary Supplements
Vitamins, protein powders, and herbal supplements are identified by the “Supplement Facts” label on the packaging, as opposed to the “Nutrition Facts” label on regular food.2Alaska Remote Sellers Sales Tax Commission. SSUTA Definitions – Article I Two similar-looking products at Costco can be taxed differently based on which label they carry.
Alcohol
No state exempts alcohol from sales tax. Beer, wine, and spirits are taxed at the full sales tax rate in every state that collects one, and alcoholic beverages are explicitly excluded from the definition of tax-exempt food under the Streamlined Sales and Use Tax Agreement and under every state’s tax code.2Alaska Remote Sellers Sales Tax Commission. SSUTA Definitions – Article I Many states also layer excise taxes on alcohol, built into the shelf price rather than shown as a separate line at the register.
Paying With SNAP or EBT
Federal law prohibits states from collecting sales tax on food bought with SNAP benefits. Under the Food and Nutrition Act, a state cannot participate in SNAP if it allows sales tax on purchases made with program benefits.4Office of the Law Revision Counsel. 7 USC 2013 – Establishment of Supplemental Nutrition Assistance Program That applies everywhere, including states that tax groceries at the full rate.
Eligible SNAP purchases include most food for home consumption: fruits, vegetables, meat, dairy, breads, cereals, snack foods, and nonalcoholic beverages. You cannot use SNAP for alcohol, tobacco, hot prepared food, supplements (anything with a Supplement Facts label), or non-food items.5Food and Nutrition Service. What Can SNAP Buy?
When you split payment between an EBT card and cash or a credit card, only the non-SNAP portion can be taxed. Federal rules require retailers to apply SNAP benefits first to items that would otherwise be taxable, which minimizes the tax owed on the cash portion.6Food and Nutrition Service. SNAP Retailer Notice – Sales Tax, Fees, and Refunds If SNAP covers every taxable item in your cart, you pay zero sales tax even when part of the total goes on a card.
Online Orders and Delivery
The same tax classifications apply whether you shop in the warehouse or order through Costco’s website or a delivery service. Online orders are taxed based on the delivery address rather than the warehouse location, so if you live in a city with additional local taxes, you’ll pay the higher rate.
Delivery and service fees add another layer. In many states, shipping charges are taxable when the underlying product is taxable and tax-free when attached to exempt groceries. Other states tax delivery fees regardless. If you see a tax charge on an otherwise exempt grocery delivery, the delivery fee itself is often what’s being taxed.