Nebraska: There’s More to a Bagel Than Meets the Eye
- Sales Tax News
- Nov 8, 2013 | Gail Cole
“Retail sales of prepared food, including sales by caterers, and all sales of food and food ingredients through vending machines, are taxable.” That’s the gist of the Nebraska Department of Revenue. Retail sales of alcoholic beverages in Nebraska are also subject to sales tax.
The information guide defines alcoholic beverages (contain 0.5% or more of alcohol by volume), beverage service, caterer, food or food ingredients, and prepared food.
Prepared food is food intended for immediate consumption. Foods that meet any of the following conditions are considered prepared foods from a tax standpoint.
- “Food sold with eating utensils when the utensils are handed to the customer by the seller.” However, if “the eating utensils are not handed to the customer by the seller, and are merely made available to the customer, the food may or may not be taxable as prepared food.” In other words, a pile of plastic knives on a nearby counter may not cut the mustard.
- Food that contains “two or more ingredients mixed or combined by the seller for sale as a single item.” In addition to full meals, this includes foods like sandwiches and ice cream sundaes.
- Food that is “sold in a heated state or heated by the seller.” This includes everything from hamburgers to soups to coffee.
In most instances, “retailers of prepared food must collect sales tax as a separate item from the selling price of the food.” Exceptions include sales by concessionaires and vending machines, where sales tax may be included in the sales price.
Many foods that may seem like prepared foods are actually not prepared foods and are therefore not subject to sales tax. Examples include:
- Food that is repackaged, pasteurized or even sliced by the seller. Think cheese and meat platters and fruit trays;
- Raw animal foods and foods containing raw animal ingredients that require cooking. Think marinated meats;
- “Food sold in an unheated state by weight or volume as a single item.” The examples provided are bagged popcorn and containers of deli salad;
- Food sold by food manufacturers, such as dairy products, cereals, and canned vegetables; and
- Bakery items like cakes, pies, bread and bagels.
The test of the eating utensil
The complications inherent in the taxation don’t take long to surface. Consider the bagel, which is last on the list of untaxed, not prepared foods. If you purchase a bagel that has been sliced and toasted and the seller hands it to you with a packet of cream cheese and a knife, it is a taxable prepared food. You’ll pay tax when you purchase a cup of ice cream, too, if the seller hands you a spoon with your cup.
The Nebraska Department of Revenue offers the following “eating utensils test” to clarify the issue. It may also be used as a parlor game.
- “If 75% or less of the sales of all food by the seller are sales … [of food with] two or more ingredients or heated food… then eating utensils are considered provided by the seller for all other food items only if they are handed to the purchaser by the seller.”
- “If more than 75% of the sellers sales of all food items are sales of [food with two or more ingredients or heated food], then eating utensils are considered provided by the seller for all other food items if they are merely available on the premises where the food is sold.”
This 75% rule exists in other states as well. It’s worth keeping close tally. Not long ago, the owner of a café in Washington State challenged the findings of an audit over percentages and utensils, and won.
Fold sold here is most likely taxable
The information notice includes an incomplete list of establishments “generally determined to be engaged in the sale of taxable prepared food.” These include, but are not limited to:
- Bars, grills, taverns;
- Cafés and coffee shops;
- Cafeterias, fast food restaurants and food courts;
- Convenience stores, concession stands, and mobile food vendors;
- Diners and restaurants;
- Delicatessens and sandwich shops; and
- Personal chefs.
Caterers get their own paragraph on the information notice because they sell more than just food. In Nebraska, the charges for most catering services (bartenders, chefs, wait staff, chairs, tables, room service, use of dishes, etc) are subject to sales tax, like the prepared foods sold. Caterers must separately state those charges on the invoice.
However, sales tax does not apply to services unrelated to the preparation and serving of food, such as announcers, door attendants, and coat checkers.
The sales tax rate is based on the location of the catering service, not the location of the caterer. For example, when a caterer from Lincoln caters an event in Ashland, the Ashland rate of sales tax applies.
Exceptions to the rule
There are exceptions to the rules of taxation, of course. Prepared food served and/or sold by churches, schools, and “organizations licensed by the State for the care of human beings” are not subject to sales tax. Nor is prepared food sold at many political events.
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