Retail sales tax

Collecting Retail Sales Tax

Sales of prepared food

Washington law exempts most grocery type food from retail sales tax. However, the law does not exempt “prepared food,” “soft drinks,” or “dietary supplements.” Businesses that sell these “foods” must collect sales tax. In addition, all alcoholic items are subject to retail sales tax.

What is a prepared food?

Most food that restaurants and similar businesses sell falls within the definition of prepared food or soft drinks and therefore is taxable. Prepared food is defined by law as any food where the seller:

• Combines two or more food ingredients and sells it as a single item (see certain exclusions below);
• Sells the food in a heated state or heats the food; or
• Sells the food with eating utensils such as a plate, fork, knife, spoon or glass/cup straw.

  Note: Utensils do not include containers and packaging used for transporting food.

Which beverages are “soft drinks?”

For this document, “soft drinks” are any sealed ready to drink beverages containing natural or artificial sweeteners but that do not contain milk, milk products or milk substitutes, or over 50 percent fruit or vegetable juice.

Can restaurants segregate their sales and not charge sales tax on food items?

Generally restaurants sales of prepared food are greater than 75% of their total sales; therefore, they can not segregate their sales and not charge sales tax on food and food ingredients. As of January 2008, retailers that primarily sell (more than 75% of their sales of food items) prepared food must collect retail sales tax on all sales of food and food ingredients, except food items sold as 4 or more servings. Food items of four servings or more of food or food ingredients packaged for sale as a single item and sold for a single price remain exempt from retail sales tax, unless the seller provides utensils.

Note: The seller must properly segregate between taxable and nontaxable sales. For more information please refer to our Special Notice on Prepared Food (pdf).

Which food or beverages sold by a restaurant are exempt from sales tax?

The following food and beverages may generally be sold tax exempt. However, the seller must collect sales tax when selling these items with an eating utensil.

• Bakery items
• Two or more food ingredients combined by the seller if the food is:
  • Only cut, repackaged, or pasteurized by the seller
  • Sold in an unheated state by weight or volume as a single item, such as potato salad sold by the ounce
  • Raw meat, eggs, fish, poultry or an item containing these raw foods and that requires cooking as recommended by FDA
• Ready to drink sealed beverages containing milk/milk product or milk substitute
• Ready to drink sealed beverages containing over 50 percent fruit or vegetable juice

More sales tax exemptions

• Sales to certain foreign diplomats/officials: The buyer must present an exemption card at the time of purchase. A colored stripe on the card identifies the level of exemption granted to foreign diplomats.
• Interstate sales: Sales of prepared food delivered to the customer outside the state such as pizza delivery.
• Sales of prepared food to nonprofit organizations engaging in a fund raising activity: The nonprofit organization must provide a reseller permit to the restaurant. The sale is subject to B&O tax under the wholesaling classification.
• Bad debts or dishonored checks: The net amount (before tax) of a dishonored check is deductible to the extent it was taken as payment for goods or services and was included in amounts previously reported. Deduction is allowed at the time the debt is actually charged off the books of account.

Note: Any bad debt amount that is subsequently recovered must be included in the gross sales amount and reported.
 

References: RCW 82.08.0293; WAC 458-20-119; WAC 458-20-196; WAC 458-20-124; WAC 458-20-107, WAC 458-20-110, WAC 458-20-102, and WAC 458-20-244