Retail sales of prepared foods
Beginning January 1, 2008, businesses where “prepared foods” make up more than 75% of the annual sales of food and food ingredients must collect sales tax on all sales of food and food ingredients. Businesses whose sales of prepared foods are less than 75% of their total annual sales of food and food ingredients may segregate their food sales and collect sales tax only on those items subject to sales tax.
Prepared foods include:
Food sold with eating utensils provided by the seller.
- Utensils include plates, knives, forks, spoons, glasses, cups, napkins, or straws
- Utensils do not include containers or packaging used to carry the food, such as a container for potato salad
Food and food ingredients sold in a heated state or heated by the seller, except bakery items.
- Examples: grilled sandwiches, soups
Two or more food ingredients mixed or combined by the seller for sales as a single item, unless the product:
- Is only cut, repackaged, or pasteurized by the seller
- Contains raw eggs, fish, meat, poultry, and food containing these raw foods that require cooking by the consumer as recommended by the FDA to prevent food borne illness.
If sold without eating utensils provided by the seller, prepared foods do not include:
- Bakery items
- Food sold by weight or volume as a single item in an unheated state
- Food sold by a food manufacturer per NAICS sector 311, except for bakeries.
All businesses that sell “prepared foods” must determine whether or not they meet the 75% threshold. See the Retailers of Prepared Foods guide and WAC 458-20-244 for specific instructions and examples.
Wine maker dinners, catered events, banquet facilities
Wineries often sponsor or participate in dinners or catered events or provide banquet facilities for rent to outside parties. Your tax obligations in each of these events differ, depending on the goods and services provided.
Sponsoring dinners/ catering events
If you serve prepared food to or cater for consumers, you are providing a retail service. You must collect retail sales tax on the total charge to customers for meal or catering services. WAC 458-20-119; WAC 458-20-124
A “caterer" is a person who provides, prepares, and serves meals for immediate consumption at a location selected by the customer. For caterers, this includes the charge for meals, equipment, decorations, as well as the catering service. Tax applies regardless of where the caterer prepares and/or serves the meals and whether the caterer uses ingredients that the customer provides. WAC 458-20-119
You must collect sales tax based on the location where you serve the meals.
Wholesale sales of catering services
If your catering service sells to someone other than the ultimate consumer (for example, a nonprofit organization that will resell the dinners as part of a fund-raising event), then you are making a wholesale sale. In such cases, you may accept a reseller permit from your customer. Your gross income from such jobs is reported under the wholesaling B&O tax classification. Retail sales tax does not apply.
Sales tax on rentals/purchases by food servers/caterers: You must pay retail sales or use tax on purchases or rentals of items for your own use in the business, when the items are not resold to the consumer. You are considered the consumer of all tangible personal property used. The tax applies even if the food service company/caterer itemizes the charge to the customer. Taxable items include:
- Serving utensils
- Cooking equipment
Providing banquet/meeting facilities
Wineries often rent out part of their facilities to others for banquets, parties, meetings, etc. In most cases, if you make a separate charge for the use of a banquet or meeting room, retail sales tax does not apply. Instead, this income is subject to B&O tax under the service and other activities classification. However, banquet/meeting facilities provided by a lodging business (hotel, motel, etc.) are subject to sales tax.
If a single charge is made for both a banquet room and meals/drinks (the banquet facility charge is not separately stated), then the total charge is subject to retailing B&O tax and retail sales tax must be collected.
Retail sales tax does not apply to tips or gratuities received under circumstances that are clearly voluntary. However, if the gratuity is a mandatory charge on the bill, then the charge becomes part of the selling price of the meal/service, and is subject to retail sales tax and retailing B&O tax.
A gratuity is not voluntary when the amount is agreed upon and the contract document states that a gratuity “will be added.” For example, a food server/caterer may have a policy of adding a 15 percent charge to the bill for groups of five or more customers. When a gratuity is applied in this manner, the entire charge is subject to retail sales tax as well as retailing B&O tax.
- Example: The total food/drink bill for a group of five is $200. A mandatory tip of 15 percent is added on for a total bill of $230. Retail sales tax should be calculated on $230. Assuming an 8.3 percent tax rate, the total with tax is $249.09. Additionally, the $230 gross sales amount is subject to retailing B&O tax.