OLR Research Report

December 21, 2007




By: Judith Lohman, Chief Analyst

You asked for the following information relating to a possible sales tax exemption for candy, confectionery, and soda sold through vending machines:

1. explanation and history of the current sales tax exemption for vending machine sales;

2. vending machine sales tax exemptions in surrounding states;

3. similar tax exemptions already in effect in Connecticut and how they have benefited the industry receiving the exemption;

4. the state of the vending industry and other industries that would be affected by the exemption, how many people they employ, and their current contribution to Connecticut;

5. the state fiscal impact of enacting the proposed exemption; and

6. whether other industries have recently requested similar exemptions.

This report covers items one through four and item six. We have referred your question about the fiscal impact of the proposed exemption to the Office of Fiscal Analysis. You will receive an estimate directly from them.


Connecticut generally imposes state sales tax on sales of candy, confectionery (candy and other food high in sugar, such as gum), and carbonated soft drinks (soda). Connecticut also taxes “meals,” which is food prepared or packaged for immediate consumption. Most individual, single-serving packages of snacks, such as chips, pretzels, or cookies, are considered meals and are therefore subject to sales tax.

Special exemptions apply to vending machine sales of meals and some candy, confectionery, and soda. When sold through a vending machine, (1) meals (including non-candy “snacks”) are not taxed regardless of price and (2) candy, confectionery, and soda are not taxed if sold for 50 or less. Vending machine meals have been effectively exempt since 1995 while candy and soda costing 50 or less were exempted in 2000.

Of the six states surrounding Connecticut, Massachusetts and Vermont do not tax candy and soda, although Massachusetts limits the exemption for candy and soda sold through vending machines to such items costing less than $3.50. New Jersey and Maine allow certain vending machine operators to pay sales tax on their wholesale cost rather than the retail price. New Jersey, New York, and Massachusetts also limit the price for exempt vending machine items. Of the six states we surveyed, only Rhode Island both taxes candy and soda sales and has no special provisions for such items when they are sold through vending machines.

Connecticut already has many sales tax exemptions. In a 2005 legislative public hearing, the beneficiaries of exemptions for car washing and business aircraft management services testified that the exemptions were crucial in maintaining those businesses in Connecticut.

Data from the Department of Revenue Services (DRS) shows that businesses primarily engaged in vending machine operations in Connecticut had at least $67.7 million in sales in the state in FY 07. Census data shows vending machine businesses had 3,650 paid employees and a total statewide payroll of $14.6 million in 2005.

A survey of sales tax exemption proposals in the last three legislative sessions shows legislators requested exemptions for nine specific products or industries.


Tax on Food

Although Connecticut's 6% sales tax applies to sales of all tangible personal property at retail, state law exempts “food products for human consumption” from the tax. But it excludes certain foods and beverages from the exemption, thereby making them taxable. The taxable food products are (1) liquor, wine, and beer; (2) soft drinks, sodas, or beverages ordinarily dispensed at, or in connection with, bars and soda fountains; and (3) candy and confectionery (CGS 12-412 (13)). (Although subsection (13) excludes nonprescription medicine and dietary supplements from the tax exemption for food products, these items are exempt from the sales tax under another subsection (CGS 12-412 (48)).

In addition to the list of taxable foods, the law also excludes “meals” sold by “eating establishments” or caterers from the exemption thus making them taxable. A “meal” is food sold in ready-to-eat form or wrapped as “take-out” or “to-go” to be eaten elsewhere. The term “meal” includes “snacks”, donuts, cookies, single slices of cake, or other items sold for immediate consumption.

An “eating establishment” includes a restaurant, cafeteria, grinder shop, pizzeria, drive-in, fast food outlet, ice cream truck, hot dog cart, refreshment stand, sandwich shop, private and social club, cocktail lounge, tavern, diner, snack bar, and hotel or boarding house that furnishes both lodging and meals to its guests (CGS 12-412 (13)).

Exemption for Vending Machine Sales

State law provides a sales tax exemption for certain items when they are sold through coin-operated vending machines. These items are subject to sales tax when sold by other types of retailers. The vending machine exemption covers (1) meals and (2) items costing 50 or less. Since single-serving, ready-to-eat items, such as sandwiches, bags of pretzels, or cookie packages, are considered “meals,” this law means that such items are not taxed when sold through vending machines, regardless of the price. But candy, confectionery, and soda are neither meals nor food products, so they are taxable when sold through vending machines, unless they cost 50 or less (CGS 12-412(27), as amended by 121 of PA 07-4, June Special Session).

For example, according to DRS Policy Statement 2001 (5), the following items are not taxable when sold through vending machines:

Sandwiches and grinders (ready-to-eat, heatable or microwavable)

Packages, canned, or dehydrated soups, entrees, meats, and vegetables

Chips, pretzels, popcorn, nuts, trail mix, and similar snack food

Granola and cereal bars

Cookies, crackers, and donuts

Fruit (canned, dried, or individual pieces)

Puddings, cakes, pies, and ice cream

Coffee, tea, and cocoa

Fruit juice, mineral water, and all other noncarbonated, nonalcoholic beverages

Any item costing 50 or less

Other hand, the following items are taxable when sold through vending machines if they cost more than 50:

Candy and confectionery, including chocolate

Candy-coated nuts, raisins, popcorn, cereal and granola bars

Chewing gum

Soda and all other carbonated beverages and alcoholic beverages

Cigarettes and tobacco products

Items not intended for human consumption

History of the Vending Machine Exemption

Connecticut's first sales tax exemption for vending machine sales was enacted in 1974. PA 74-263 exempted items sold from one-cent vending machines, effective July 1, 1974. This exemption was nick-named the “gumball” exemption since it applied mostly to coin-operated machines that dispensed gumballs and other kinds of penny candy. Other types of candy remained taxable.

The next change occurred in 1995, when the General Assembly exempted sales of “food products,” as defined elsewhere in the sales tax law, if they were sold through coin-operated vending machines. Since most food products were already exempt from sales tax, the practical effect of the change was to exempt “meals” sold through vending machines. The 1995 exemption did not apply to candy, confectionery, or soda, because they are not considered “food products” under the sales tax law (PA 95-160).

In 1998, PA 98-262 explicitly removed vending machines from the definition of an eating establishment, thus making the definition conform to the effect of the 1995 change.

In 2000, the General Assembly expanded the “gumball” exemption to cover all items sold through vending machines for 50 or less. This exemption covers items that are otherwise taxable, such as candy, gum, Lifesavers, and similar items sold from vending machines for 50 or less (PA 00-170).

In 2007, the General Assembly clarified the sales tax exemption for vending machine items by stating explicitly that the exemption for “food products” sold through vending machines refers to otherwise taxable meals (PA 07-4, June Special Session). The act also extended the vending machine exemption to sales from “honor boxes,” which are typically unattended boxes where customers are “on their honor” to deposit money for the items they buy.


Table 1 shows taxable food items, exemptions for candy and soda, and special exemptions or provisions for vending machine sales in six surrounding states.

Table 1: Vending Machine Exemptions in Surrounding States


Sales Tax Rate

Candy and Soda Covered By General Exemption for Food

Taxable Food and Beverages

Special Provisions for

Vending Machine Sales



7% for lodging and prepared food


Soft drinks, iced tea, soda

Water, including mineral bottled and carbonated water


Dietary substitutes

Candy and confectionery

Prepared foods (meals)

Sales tax for retailers who derive more than 50% of gross sales from vending machines is based on retailer's wholesale price




Meals provided by a restaurant for consumption on or off the premises, including take-out food and food sold “to go”

Dietary supplements

Snacks, candy or beverages costing less than $3.50 when sold from vending machines that sell only snacks or candy

Sales of other tangible personal property for 10 or less by a retailer primarily engaged in making such sales

Table 1: -Continued-


Sales Tax Rate

Candy and Soda Covered By General Exemption for Food

Taxable Food and Beverages

Special Provisions for

Vending Machine Sales

New Jersey



Restaurant or catered meals

Ready-to-eat meals, including sandwiches, for off-premises consumption


Carbonated soft drinks

Sales of any food or drink, other than milk, costing 26 or more from a vending machine

Sales of 25 or less if the retailer is primarily engaged in making such sales

Vending machines that dispense food and drink must pay sales tax on the wholesale price of the items, defined as 70% of the retail vending machine selling price

New York

4%, plus

additional local tax




Fruit drinks containing less than 70% natural fruit juice

Soft drinks other than coffee, tea and cocoa


Heated or prepared meals

Exemptions for:

Sales of taxable food items for less than 75 through machines operated by coin, currency, credit, or debit card

Sales of other items for 10 or less through coin-operated machines

Sales of tangible personal property costing 50 or less through coin-operated bulk vending machines (machines that dispense roughly equal amounts of random, unsorted merchandise without the customer making a selection)

Rhode Island




Soft drinks, other than milk and milk substitutes, and drinks containing more than 50% fruit or vegetable juice

Meals and other food products sold for immediate consumption on or off the premises or on a take-out or “to go” basis

Vending machine sales are exempt from a local 1% sales and use tax on meals and beverages

Table 1: -Continued-


Sales Tax Rate

Candy and Soda Covered By General Exemption for Food

Taxable Food and Beverages

Special Provisions for

Vending Machine Sales




Meals furnished by a restaurant whether for consumption on or off premises, including sandwiches, salad bars, and heated food or beverages

Vending machines are exempt from the tax on meals unless located on the premises of a restaurant


Connecticut exempts many types of sales from the sales tax. We attach a list of the exemptions for consumer goods and their estimated costs taken from the 2004 Tax Expenditure Report, published by the Office of Fiscal Analysis. (The 2004 report is the most recent available.)

Two exemptions that are somewhat similar to a proposed expanded exemption for vending sales, in that they benefit a particular industry, are the exemptions for (1) car washing services and (2) certain types of management services for aircraft.

The General Assembly subjected car washing services to the sales tax as of July 1, 1989 (PA 89-251 1). In 1991, it exempted coin-operated car washes (PA 91-3, June Special Session), and then all car washes as of January 1, 1994 (PA 93-74, 23). The Office of Fiscal Analysis' Tax Expenditure Report (2004) estimates that the car washing exemption costs the state $1 million per year.

In 2002, the General Assembly exempted business analysis, management, consulting, and public relations services furnished in connection with certain business and privately owned aircraft (PA 02-1, May Special Session). The 2004 Tax Expenditure Report estimates that the exemption costs the state $200,000 per year.

In 2005, the Finance, Revenue and Bonding Committee raised a bill that would have eliminated most sales tax exemptions and reduced the tax rate from 6% to 3.5% (SB 1360). At the public hearing on the bill, witnesses representing the car wash and aviation service industries described the effects that eliminating the two exemptions would have on their industries.

Paul Ferruolo, past president of the Connecticut Car Wash Association and owner of Mr. Sparkle Car Wash, stated that the imposition of the sales tax on car wash services in the early 1990s was very disruptive to the industry. He said that coin-operated car washes had no machinery available that could be programmed to collect the combination of coins needed to collect the tax. Thus, imposing the tax on the automatic car washes would reduce profits since it would be impossible to pass the tax on to customers. To maintain the competitive balance between automatic and so-called “attendant” car washes, it was necessary that all car washes be exempt. He said that 70% of the car washes are “small mom and pop operators” and that they face pressure from oil companies that give away car washes in conjunction with gas purchases to attract customers.

Several witnesses testified to the effect of the aircraft management services exemption.

James Scavotto, general manager of Bombardier Learjet Hartford Service Center at Bradley International Airport, stated that his company had expanded from a 65,000 square foot maintenance facility and 45 employees in 1981 (before the exemption) to a 220,000 square foot facility with 350 employees. The exemption resulted in the company attracting 1,187 out-of-state aircraft for service visits in 2004. Each plane stayed an average of one week, providing revenue for local businesses.

Michael Deegan, general manager of Lanmar Aviation in Groton, said the company had grown from four offices and a 25,000 square foot hangar and 10 T-hangars in 2001 to six additional offices, a 40,000 square foot hangar and an additional 36 T-hangars. The number of employees had grown from two to 40 to 45. Lanmar shares the Groton field with Columbia Air Services and the two together had $8 million in revenue growth in 2004 alone. Without the tax exemption, most planes would leave the Groton-New London airport for Rhode Island, New York, and New Jersey and Lanmar would be forced to shut down its entire operation, he said.

Tom Fitzsimmons, chief operating officer of Private Air based at Bridgeport Sikorsky Memorial Airport, said that 17 of the 45 business jets it manages are based in Bridgeport along with 55 of the company's 145 employees. The company pays $3.7 million in local salaries and $5.5 million to local vendors in addition to Bridgeport property taxes.

Eric Zipkin, president and owner of Trade Wind Aviation, said he had founded his company in New York but moved to Connecticut in 2001 because of the tax exemption. The company employs 45 people and manages seven aircraft.

Dean Saucier of the National Business Aviation Association, said that Connecticut has “20 plus” aircraft management companies, many of which would leave the state if the tax exemption were eliminated.

Richard Lieberfarb, vice-president of Key Air and its sister company Keystone Aviation, said that his company is based at Waterbury-Oxford Airport, that it leases the property from the state, and had invested $30 million in that property.


Connecticut Data

Vending Machine Operators. We found two sources of Connecticut-specific data on the vending machine industry, the Connecticut DRS and the U.S. Census Bureau's 2005 Economic Census. Both have economic data for “vending machine operators” identified by North American Industry Classification System (NAICS) Code 454210. This industry group comprises establishments primarily engaged in retailing merchandise through vending machines that they service.

Unfortunately, not all companies that operate vending machines are covered by this classification, since not all companies that operate vending machines have that as their primary business. For example, the Coca Cola company, which operates vending machines, is classified as a soft drink bottler. Wal Mart, which has vending machines outside some of its stores that it stocks from its inventory, is likewise not classified as a vending machine operator. Thus, the figures given here are likely to understate the number of vending operators and total employment because it is impossible to distinguish what portion of other companies' total sales come from vending machines.

DRS sales tax figures for FY 07 list 304 vending machine operators registered in Connecticut with total retail sales of $67,721,837 in the state. Because of the classification issues cited above, Michael Galliher of DRS' Tax Research Unit, who provided the figures, thinks both the number of operators and the total sales are understated.

The U.S. Census County Business Patterns for 2005 (the most recent available) lists 48 vending machine operator “establishments” in Connecticut, with 3,650 paid employees and annual payrolls totaling $14,559,000. The Census defines “an establishment” as a business or industrial unit at a single location that distributes goods or performs services. County-level data show 15 of the establishments located in Hartford County and 17 in New Haven County, with the rest scattered in other counties. The companies in Hartford County had a total of 1,367 paid employees and total payroll of $5,109,000. The New Haven County companies employed 1,151 paid workers with wages totaling $4,803,000.

Soda, Candy, and Snack Food Employment. 2005 Census data shows two snack food (including candy) manufacturers and two soda manufacturers located in Connecticut. The survey provides no information on sales or payrolls, apparently to avoid inadvertently identifying the specific companies.

A Price Waterhouse Coopers August 2006 analysis of the Economic Impact of the Selective Taxation of Snack Foods, while not directly addressing vending machine operators, aggregates 2003 Census data for various industry classifications to show a total of 4,779 employees in Connecticut working in the snack food manufacturing and distribution industries.

National Data on Candy and Soda Sales Through Vending Machines

According to “State of the Vending Industry Report,” published in Automatic Merchandiser magazine (August, 2007), cold beverages and candy, confections, and snacks have been the biggest sales categories for vending machines nationally over the four years from 2003 through 2006.

Cold beverage sales totaled $6.42 billion in 2006, a 1.2% increase over the previous year. Operators suffered from price increases by soda manufacturers and the inability to pass on the full increases to customers, cutting into profits in one area that has been “historically one of the most profitable vend product segments.” (p. 51). Sales of noncarbonated beverages, such as iced tea, bottled water, and energy drinks (which are not taxable in Connecticut), grew more rapidly than soda.

Candy, confectionery, and snacks had more revenue growth in 2006 than in prior years but most of the gain was due to manufacturer price increases and more placements of large-size candy bars (p. 52). Of the top 20 most popular items over the past four years (2003-2006), nine were candy or candy bars that would be taxable in Connecticut. All sold for more than 50, with 2006 average prices ranging from 68 to $1.04. The best-selling item, Masterfoods USA's 2-oz. Snickers Original, sold for an average price of 70 (p. 56).

In general, the article is downbeat on prospects for growth in the vending industry, noting that vending revenues did not keep pace with national economic growth from 2002 to 2006 (p. 45).


In the last three legislative sessions (2005, 2006, 2007), bills have been proposed to exempt the following businesses or products from the sales tax. Unless otherwise noted, these proposals did not become law.

1. Candy sold for 50 from unattended honor boxes (enacted),

2. biodiesel fuel,

3. small businesses located in federally designated historically underutilized business (HUB) zones,

4. hybrid vehicles with gas mileage ratings over 40 miles per hour (enacted for hybrid passenger cars),

5. toiletries purchased for food pantries,

6. fuel-efficient sport utility vehicles,

7. construction materials used to build affordable housing in enterprise zones,

8. equipment designed to aid the visually impaired, and

9. equipment and materials used to convert solar energy directly or indirectly into electrical or thermal energy.