If your prepared food sales are greater than 75% of your total food sales, then you are required to collect sales tax on all of your food sales, with the exception of sales of packages containing four or more servings.
Prepared food includes heated foods, combined foods (two or more ingredients), or foods sold with utensils provided by the seller.
Businesses that usually exceed the 75% prepared food sales threshold include:
- Coffee shops.
- Sports/entertainment arena sellers.
- Mobile food sellers.
- Fast food restaurants.
- Food court restaurants.
- Hot dog stands.
- Juice bars.
- Popcorn/Kettle corn vendors.
- Sandwich shops.
- Ice cream shops.
- Sushi bars.
- Taverns, bars, and grills.
- Donut shops.
- Espresso stands.
If you do not collect sales tax on all of your food sales, you must prove that your prepared food sales are below the 75% threshold or you will be liable for any uncollected sales tax on your total food sales.
Exception for four or more servings
Food or food ingredients packaged for sale as a single item containing four servings or more (e.g., ground coffee, whole cakes, loaves of bread) and sold for a single price are not subject to sales tax, even if the business exceeds the threshold.
However, if the seller’s customary practice is to physically hand or otherwise deliver a utensil to the customer as part of these sales transactions, then sales tax will apply. The number of servings in a package of food or food ingredients is determined by the manufacturer’s label. If no label is available, you must reasonably determine the number of servings.
Calculating for multiple locations
If you have multiple locations, you may calculate a separate percentage of prepared food sales for each location or one overall percentage from all locations in the state. You can use the prior fiscal year or calendar year’s sales figures. Once you choose a method of calculation, you must continue to use that method for future calculations unless you receive written consent from the department to change methods.