New Jersey, Sushi, and 75%
- Sales Tax News
- Sep 15, 2014 | Gail Cole
Some people go to great lengths in order to avoid tax – even tax they only have to collect, not pay themselves. The motivation could be a feisty libertarian streak. Or perhaps it's a desire to keep prices low, to draw customers and improve their own bottom line.
For example, there is a pizzeria owner in New York who renamed his business in order to take advantage of the sales tax exemption available to bakeries. Another business owner sold wrap sandwiches unassembled in order to avoid the sales tax on sandwiches. I wouldn’t be surprised if a burrito business owner hopped across the border from New York (where burritos are subject to sales tax) to Massachusetts (where they are not) just to avoid the tax.
Sushi in New Jersey
New Jersey sales tax is imposed on “the retail sale of tangible personal property, services, and specified digital products unless a valid exemption exists.” Food and food ingredients are exempt from sales tax; “the sale of prepared food” is taxable.
Prepared food is:
- Food sold in a heated state by the seller.
- Food that is the result of the seller combining two or more food ingredients to make a single item.
- Food sold with eating utensils (plates, cutlery, glasses, napkins, straws, etc).
New Jersey also considers the following to be prepared food when sold with utensils:
- Food sold by a seller whose primary NAICS classification is manufacturing….
- Food sold in an unheated state by weight or volume as a single item (that salad bar salad).
- Bakery items sold as such, such as bagels, biscuits, bread, croissants, pastries, and tarts.
The 75% threshold
Sellers whose sales of prepared food make up 75% or less of their total sales must physically give the utensils to the purchaser in order to be considered to be providing the utensils. Sellers whose sales of prepared food make up greater than 75% of their total sales are considered to be providing utensils if utensils are merely made available to purchasers (as when utensils are available in a common area).
In a recent letter ruling published by the New Jersey Department of Taxation, a taxpayer wanted to know if the packaged sushi it purchases from a manufacturer and then sells to consumers is subject to sales tax. In this particular instance, because the taxpayer is under the 75% threshold and because the seller does not provide utensils to the buyer, the sushi is not subject to sales tax.
Jiggle the circumstances just a bit (cross the threshold or hand over some utensils) and the exempt sushi could suddenly become taxable.
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