What is a combination business?
A “combination business” is a business that sells both taxable and nontaxable goods at one location.
Sellers operating a combination business must collect sales tax on all their sales unless the seller properly segregates taxable and nontaxable sales.
A cash register or electronic checking machine that is programmed to identify and separately tax sales of taxable goods is sufficient segregation.
Note: Combination businesses that have prepared food sales greater than 75% of their total food sales (see discussion on Tax Information for Retailers of Prepared Food) are not allowed to segregate their sales and must charge retail sales tax on the sales of all food items, except sales of food with four or more servings and sales of eligible foods under the Federal Food Stamp Act.
Which food and beverage sales by a deli are subject to sales tax?
Delicatessens offer a variety of food and beverages for sale. Some foods are “prepared food” such as sandwiches, soups, or salads and are generally subject to sales tax. However, nontaxable grocery type foods such as canned or prepackaged food, baked goods, and meats and cheeses are also sold by delis.
If the deli’s sales of prepared food are less than 75% of their total food sales and the deli properly segregates taxable and nontaxable sales then the deli needs only to collect sales tax on sales of taxable food items and soft drinks.
Taxable food and beverages sold by a deli include:
- Any food or beverage sold with or in a cup, plate, napkin, fork, spoon, bowl, etc.
- Any food or beverage sold hot, except bakery items
Any food or beverage where the seller has combined two or more ingredients – unless:
- The seller merely cut, repackaged, or pasteurized the food items (sliced meats and cheeses).
- The seller sells the item unheated and by weight or volume as a single item (salads).
- The food is raw meat, fish, poultry, or eggs, or contains any of these raw ingredients and recommended by the FDA to be cooked.
Tax exempt food and beverages include:
- Fresh fruit/vegetables
- Bakery items sold without a utensil
- Other bottled or canned beverages containing over 50 percent fruit or vegetable juice, or milk, milk product, or milk substitute
- Canned goods
- Prepackaged food (packaged by the manufacturer)
If the deli’s sales of prepared food are greater than 75% of their total food sales, then the deli must charge retail sales tax on all food items. (See discussion on Tax Information for Retailers of Prepared Food)
Note: Items of four or more servings (sold without utensils) remain exempt from sales tax.
For more information please see the previous discussion on "Collecting Retail Sales Tax."
Which food and beverage sales are subject to sales tax?
Espresso stands and coffee shops generally sell prepared coffee and coffee beverages. Many also sell sandwiches, soups, and other foods such as bottled water or juices, prepackaged chips, cookies, or muffins and coffee beans (whole bean or ground) by the pound.
Sellers that make utensils available to customers and sell both prepared foods and other foods must determine whether their prepared food sales make up more than 75 percent of their total food sales. This calculation can be done on an annual basis to apply for the subsequent years sales.
For more information about calculating the 75 percent threshold, please see discussion on Tax Information for Retailers of Prepared Food.
Sellers that meet the 75 percent threshold must collect sales tax on most food sales. In this case, the only foods that may be sold tax-exempt are foods that are packaged as four or more servings, are generally exempt, and are sold for a single unit price. For example, coffee beans (ground or whole) sold by the pound.
Sellers below the 75 percent threshold may continue to segregate their food sales and collect sales tax only on sales of foods that they prepare, or foods that they sell in a manner that an eating utensil is necessary to receive the food.
Can I include the sales tax in my sales price?
Sales tax can be included in the sales price but only if the price list and other price information clearly indicate that sales tax is included. See the Including Sales Tax in the Price section.
Pizza: Prepared and delivered or take-and-bake
Do I collect sales tax on “take and bake” pizzas?
When the seller is the one who combines two or more ingredients to make the pizza, the seller must collect sales tax.
Retail sales tax does not apply to sales of prepackaged pizza when sold by a person who did not combine the ingredients.
Example: Retail sales tax does not apply to pizza when sold by a grocery store when the grocer does not make the pizza or combine the ingredients.
What if I deliver pizza to a customer outside the state?
If you deliver pizza to the customer at a location outside the state, Washington’s tax does not apply. You may take an “interstate sale” deduction under both retail sales tax and retailing B&O tax.
References: WAC 458-20-124; WAC 458-20-12401 and WAC 458-20-193