How to calculate prepared food sales percentages (continued)

Example 4

Giant Food Store, Inc. is a large grocery store. In addition Giant Food Store also has a deli and bakery and a “you–make–it” salad bar onsite. The deli has utensils (i.e. napkins, lids, plastic ware, straws, etc.) on their counters for customer use. Previously, Giant Food Store had segregated their sales and not charged retail sales tax on exempt food items. Deli items could be purchased at the deli counter or paid for at the checkout stand. Bakery items and other food items can only be paid for at the checkout stand. Giant Food Store decides they would like to see if they can continue to segregate their sales and not have to charge sales tax on all food items.

In 2017, Giant Food Store, Inc. made the following sales. (Since Giant Food Store has a deli on their site (same entity) they must include the sales of the grocery store and the sales of the deli when making this calculation.)

Deli sales:

Hamburgers/cheeseburgers	$100,000
Deli sandwiches	$300,000
Hot wings	$200,000
Chicken strips	$100,000
Potato salad (sold in containers by weight)	$75,000
Jo Jo’s	$55,000
Burritos	$75,000
Fruit salad (sold in containers by weight)	$45,000
4-Bean salad (sold in containers by weight)	$20,000
French fries	$35,000
Onion rings	$15,000
Fountain drinks (soda pop)	$300,000
Bottled water	$10,000
Bottled juice (more than 50% juice)	$10,000
Coffee	$92,500
Sealed milk	$12,000
Hot apple pie (by the slice, served on a plate)	$15,000
Chocolate cake (by the slice)	$20,000
Meat (sliced and repackaged by the deli)	$30,000
Cheese (sliced and repackaged by the deli)	$25,000
Meat and cheese platter	$50,000
Combo meal #1 (cheese burger, french fries, soft drinks)	$135,000
Combo meal #2 (chicken strips, Jo Jo’s, soft drink)	$75,000

 

Bakery items sales:

Donuts	$75,000
Box of donuts (12)	$40,000
Whole pies	$75,000
Whole cakes	$80,000
Bagels	$50,000

 

Grocery store sales:

Spices (food ingredient)	$30,000
Exempt food items	$3,285,300
Alcoholic beverages (beer and wine)	$350,000
Sealed soft drinks (soda pop)	$400,000
Tobacco	$175,000
Cough drops	$25,000
Gum and candy	$300,000
Ice (cubed)	$30,000
Ice (block)	$15,000
Dietary supplements	$45,000
Salad bar sales	$135,000

 

(Giant Food Stores does not combine any of the food items. The customer makes his own salad in a Styrofoam to-go container.)

Ms. Wilson, their CPA, is preparing their annual calculation to evaluate whether Giant Food Stores Inc. predominately sells prepared foods. In making this evaluation, she must determine whether 75 percent or more of their sales are considered prepared foods. Her calculation follows:

Step 1: Calculate the numerator

The numerator includes the following items (items are to be counted only once in the numerator, even if they could qualify under more than one classification):

1. All foods sold in a heated state:

Hamburgers/cheeseburgers	$100,000
Hot wings	$200,000
Chicken strips	$100,000
Jo Jo’s	$55,000
Burritos	$75,000
French fries	$35,000
Onion rings	$15,000
Coffee	$92,500

Note: Although the apple pie is served heated, it is not included in this portion of the calculation because it is a bakery item.

2. Combined foods (all foods where the seller combines two or more ingredients)

Deli sandwiches	$300,000
Fountain drinks (soda pop)	$300,000
Combo meal #1 (cheese burger, French fries, soft drinks)	$135,000
Combo meal #2 (chicken strips, Jo Jo’s, soft drink)	$75,000

Note:

• Although the salads (potato, 4-bean, and fruit) are made with two or more ingredients, they are exempt from this calculation, because they are sold by volume or weight.

• Although the cakes, pies, bagels, and donuts are made with two or more ingredients, they are exempt from this calculation because they are considered bakery items.

3. Foods sold where a utensil is necessary to receive the food

Hot apple pie (by the slice)	$15,000
Cake by the slice	$20,000
Salad bar sales	$135,000

Note:

• The salad bar sales are included in this calculation, even though the store does not combine the ingredients. The Styrofoam container is considered a necessary utensil to receive the food.

• Even though the hot apple pie and cake by the slice are both bakery items, they are included because they are served with a utensil (plate).

The total amount for the numerator is $1,652,500 ($672,500 heated food, + $810,000 combined foods + $170,000 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:

Hamburgers/cheeseburgers	$100,000
Deli sandwiches	$300,000
Hot wings	$200,000
Chicken strips	$100,000
Potato salad	$75,000
Jo Jo’s	$55,000
Burritos	$75,000
Fruit salad	$45,000
4-Bean salad	$20,000
French fries	$35,000
Onion rings	$15,000
Bottled water	$10,000
Bottled juice (more than 50% juice)	$10,000
Coffee	$92,500
Sealed milk	$12,000
Hot apple pie (by the slice)	$15,000
Chocolate cake (by the slice)	$20,000
Meat (sliced and repackaged by the deli)	$30,000
Cheese (sliced and repackaged by the deli)	$25,000
Meat and cheese platter	$50,000
Combo meal #1 (cheeseburger, french fries, soft drinks)	$135,000
Combo meal #2 (chicken strips, Jo Jo’s, soft drink)	$75,000
Donuts	$75,000
Box of donuts (12)	$40,000
Whole pies	$75,000
Whole cakes	$80,000
Bagels	$50,000
Exempt food items	$3,285,300
Gum and candy	$300,000
Ice (cubed)	$30,000
Salad bar sales	$135,000

 

2. Food ingredients:

Spices

$30,000

 

3. Soft drinks include:

Fountain drinks	$300,000
Sealed soft drinks	$400,000

 

4. Dietary supplements:

Dietary supplements

$45,000

 

The total for the denominator would be $6,339,800 ($5,564,800 food items, + $30,000 food ingredients, + $700,000 soft drinks + $45,000 dietary supplements)

Note: Although the store made the following sales, these sales are not part of the calculation:

• Beer and wine – $350,000 (Alcoholic beverages are not considered food items and therefore are not part of the calculation.)
• Tobacco – $175,000 (Tobacco products are not considered food items and therefore are not considered part of the calculation.)
• Cough drops – $25,000 (Medicines and hygiene products are not considered food items and therefore are not part of the calculation.)
• Ice (block) – $15,000 (Block and dry ice are not considered food items and therefore are not part of the calculation.)

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 = percentage

n $1,652,500 = .261 or 26.1%
=
d $6,339,800

Step 4: Determination

Giant Food Store’s percentage of prepared food sales in 2017 was less than 75 percent. Therefore, they are not classified as predominately selling prepared food. During 2018, the store may segregate its sales and is not required to collect retail sales tax on exempt food items (food and food ingredients).

Even though Giant Food Stores is not required to collect sales tax on all food items, the following items would remain subject to retail sales tax: