8 May 2003 GST/HST Interpretation 41787 - Tax Status of Chocolate Milk Sold in School Cafeterias

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to chocolate milk sold in school cafeterias.

Statement of Facts

Our understanding of the facts is as follows:

1. The XXXXX oversees a program that provides milk in schools at reduced prices to encourage students to drink milk instead of less nutritional beverages.

2. A processor sells single servings of chocolate milk to the operator of a school cafeteria (Operator).

3. The processor delivers the single servings of chocolate milk in unsealed plastic returnable containers (i.e. traditional milk shipping crates).

4. Each traditional milk shipping crate contains either forty-eight 250 ml containers or thirty-two 500 ml containers of milk.

5. The processor charges GST/HST on the supply of single servings of chocolate milk.

6. The Operator is not a school authority.

7. The Operator is treating the supply of the chocolate milk as exempt.

Interpretation Requested

You requested an interpretation for three separate questions:

1. Where the processor pre-packages single servings of chocolate milk in multiples of 12 or 24 containers in packaging similar to that of soda pop, i.e., cardboard carton with shrink wrap, or in a cardboard carton sealed with tape, would it be zero-rated when sold to a school cafeteria operator?

2. Would chocolate milk sold in the existing packaging of returnable containers qualify for zero-rating?

3. Would the packaging have to be non-returnable and sealed for the chocolate milk to be zero-rated?

Interpretation Given

Based on the facts set out above our response is as follows:

1. Where the manufacturer pre-packages multiples of single servings of chocolate milk in a cardboard carton with shrink wrap or in sealed cardboard cartons, the supply would be zero-rated under subparagraph 1(n)(ii) of section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

2. The supply of single servings of chocolate milk sold in its current packaging (i.e. traditional milk shipping crates) is not zero-rated for purposes of section 1 of Part III of Schedule VI to the ETA and is therefore taxable at 7% GST or 15% HST, as applicable.

3. It is the opinion of the CCRA that in order to qualify as being pre-packaged, the packaging would have to be both non-returnable and sealed. This is consistent with existing pre-packaged products that fall within paragraph 1(n)(ii) of Part III of Schedule VI to the ETA.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9218.

Yours truly,

Nicole Thomas
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate