Washington State: Sales Tax on Prepared Foods
- Oct 29, 2013 | Gail Cole
Retailers in Washington State Department of Revenue has issued guidelines on the taxation of sales of prepared foods. 75 is the magic number. That’s because when sales of prepared foods amount to more than 75 percent of total food sales, retailers “are required to collect sales tax on all … food sales.”
What makes a food a prepared food?
- Foods that are heated;
- Foods that are made of two or more ingredients (combined foods); and
- Foods sold with utensils provided by the seller.
Businesses that typically exceed the prepared food sales threshold in Washington include, but are not limited to:
- Cafes and coffee shops;
- Delicatessens and Diners;
- Fast food restaurants and mobile food sellers;
- Juice bars and espresso stands;
- Restaurants, taverns, and pizzerias.
Any business that does not collect sales tax on all food sales must be able to prove that prepared food sales amount to less than 75% of all sales. If proof cannot be provided, businesses “will be liable for any uncollected sales tax” on total food sales.
Exceptions to the rule
Life just wouldn’t be any fun without exceptions to the rules. Accordingly, this rule has exceptions:
“Food or food ingredients packaged for sale as a single item containing four servings or more … and sold for a single price are not subject to sales tax, even if the business exceeds the threshold.” Examples include ground coffee, whole cakes, and loaves of bread.
Unless. The transaction is exempt unless sellers have a “customary practice” of physically handing or otherwise delivering a utensil to the customer at the time of sale. When utensils are provided, sales tax applies. This is also true in Minnesota, although Minnesota’s information sheet on the topic does not reference the number of servings in a package, as the Washington special notice does.
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