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Illinois Sales Tax: Cupcake Wars

  • Jan 17, 2012 | Will Frei

Food taxability law can bewilder even the savviest business person. The latest knot to untangle comes from two cupcake competitors in the state of Illinois.

Last week, the Illinois Department of Revenue released a letter they had written in response to a query regarding the sales tax rate for cupcakes.  The original enquirer--"after calling the Illinois Department of Revenue at several different numbers and receiving conflicting information"--wanted to know if their client was charging the correct state sales tax rate on cupcakes (6.25 % state), or if a new competitor had the correct rate (1 % state).

The business collecting at the 6.25% rate is described as "a one room store with one cash register and four small tables for customers." The competitor is not described. For purposes of the rest of our discussion, we will only deal with the state portion of the sales tax, since the letter did not include all the various special district taxes.

To settle the matter, the Illinois State Department of Revenue named two key variables that determine whether a purveyor charges the higher state sales tax rate of 6.25 percent or the lower food-only state rate of 1 percent for the sale of cupcakes. The letter does not address taxes from local jurisdictions, such as the MPEA tax, or other taxes that might count towards the aggregate rates named in the query. Here are the variables:

  1. Is the food item alcohol, candy, or soft drink? These items are taxed at the higher rate. In this case, the answer is no, because cupcakes contain flour.
  2. Is the food purchased for immediate consumption? Food that customers consume on the premises is taxed at the higher rate. In order to charge the lower rate for food that will be consumed off premises, the retailer must have a partition separating any provided seating from the area where the food is purchased, AND the retailer must have a separate means of "recording and accounting for collection of receipts that are not for immediate consumption." In this case, the business in question does not seem to have a separate means of recording their cupcake sales, since they only have one register.

Conclusion: when it comes to state sales tax, it appears that the business should be charging the higher state sales tax rate of 6.25 percent but they could implement a separate system for recording the sale of food not for immediate consumption in order to be more competitive with the new business up the road.

The latter option would certainly help to level the playing field against the competitor down the street. Unless, of course, the other business is charging the wrong rate.

If you struggle to find accurate Illinois sales tax rates, on cupcakes or otherwise, download our free Illinois sales tax rate table.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.