How to calculate prepared food sales percentages

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 counter for the customers to use (i.e. napkins, lids, plastic ware, straws, etc.).

In 2017, 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

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

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:

n
d 		= $103,000
$132,000		 = .780 or 78%

Step 4: Determination

Tiny Town Theater’s percentage of prepared food sales in 2017 was greater than 75 percent. Therefore, they are classified as predominately selling prepared food. During 2018 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 juice
  • sealed beverages containing milk
  • potato chips
  • milk
  • fruit

After 2018, 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:

  • bottled water
  • 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
  • bottled juice
  • sealed beverages containing milk
  • bags of potato chips
  • milk
  • fruit