How to Calculate Prepared Food Sales Percentages
Example 1
Tiny Town Theater operates a concession stand at their theater. The concession stand has utensils on the
couner for the customers to use (i.e. napkins, lids, plastic ware, straws,
etc.).
In 2007, Tiny Town Theater made the following sales:
| Hot dogs |
$25,000 |
| Popcorn |
$30,000 |
| Fountain drinks |
$30,000 |
| Candy bars |
$5,000 |
| Other candy |
$10,000 |
| Nachos |
$15,000 |
| Bottled water |
$2,000 |
| Bottled juice (more than 50 percent juice) |
$2,000 |
| Sealed soft drinks (pop) |
$5,000 |
| Sealed beverages containing milk (i.e. cold coffee drinks) |
$1,000 |
| Coffee |
$2,500 |
| Potato chips |
$2,000 |
| Milk |
$1,000 |
| Fruit |
$1,000 |
| Cheesecake (single servings on a plate, made by a local
bakery, not the theater) |
$500 |
Mr. Jones, the bookkeeper, is preparing the annual calculation
to determine whether sales of prepared foods make up more than 75 percent of
the theater’s annual sales of food and food ingredients. Here is his
calculation:
Step 1
Calculate the Numerator
Numerator: The
numerator includes the following items (items are to be counted only once in
the numerator, even if they qualify under more than one
classification):
1. All foods sold in a heated state:
| Hot dogs |
$25,000 |
| Popcorn |
$30,000 |
| Nachos |
$15,000 |
| Coffee |
$2,500 |
2. Combined foods (all foods where the seller combines two
or more ingredients)
| Fountain drinks (combined syrup and water) |
$30,000 |
3. Foods sold where a
utensil is necessary to receive the food.
| Cheesecake (served on a plate) |
$500 |
| Fountain drinks (cup required to receive drink, except counted
in #2 above) |
The total amount for the numerator is $103,000 ($72,500 heated food, + $30,000
combined foods, + $500 utensil necessary)
Step 2
Calculate the Denominator
Denominator: The denominator includes food, food ingredients, prepared food,
soft drinks, and dietary supplements. (Items are to be counted only once in the
denominator, even if they qualify under more than one classification):
1. Food includes:
| Hot dogs |
$25,000 |
| Pop corn |
$30,000 |
| Candy bars |
$5,000 |
| Other candy |
$10,000 |
| Nachos |
$15,000 |
| Bottled water |
$2,000 |
| Bottled juice (more than 50% juice) |
$2,000 |
| Sealed beverages containing milk |
$1,000 |
| Coffee |
$2,500 |
| Potato chips |
$2,000 |
| Milk |
$1,000 |
| Fruit |
$1,000 |
| Cheese cake (served on a plate) |
$500 |
2. Food ingredients:
The theater does not separately sell any items that are
classified as food ingredients.
3. Soft drinks include:
| Fountain drinks |
$30,000 |
| Sealed soft drinks |
$5,000 |
4. Dietary supplements:
The theater does not sell any items that are classified as
dietary supplements.
The total for the denominator would be $132,000 ($97,000 food items, + $35,000 soft drinks).
Step 3
Calculate the Percentage
The percentage of prepared food sales is determined by
dividing the numerator (n) by the denominator (d). In
this example the calculation would be:
Step 4
Determination
Tiny Town Theater’s percentage of prepared food sales in 2007
was greater than 75 percent. Therefore, they are classified as predominately
selling prepared food. During 2008 the Tiny Town Theater is required to collect
retail sales tax on all sales of food items. This includes items that were not
previously subject to retail sales tax:
- candy bars
- other candy
- bottled
water
- bottled juice
- sealed beverages containing milk
- potato chips
- milk
- fruit
After 2008, Tiny Town Theater is required to recalculate their
percentage of prepared food sales annually. If the sales remain above 75
percent, they are required to continue to collect retail sales tax on all food
items. If their prepared food sales drop below 75 percent then they may
segregate their sales and only collect retail sales tax on those items which do
not qualify for the food and food ingredients exemption. In this example, the
following items would remain subject to retail sales tax:
- hot dogs
- popcorn
- fountain drinks
- nachos
- sealed soft drinks
- coffee
- cheesecake
However, the following items would be exempt from retail sales
tax, if the sales are properly segregated:
- candy bars
- other candy
- bottled
water
- bottled juice
- sealed beverages containing milk
- bags of potato chips
- milk
- fruit
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