The Wacky World of Sales Tax on Baked Goods
- Mar 20, 2015 | Ryan O'Donnell
In celebration of National Macaron Day, we've decided to take a look a look at the unexpected complexity of how sales tax is applied to baked goods.
What are macarons you ask? These small circular edible delights are typically made from ground almonds or coconut with sugar and egg white. The name comes from the Italian maccarone or maccherone meaning "paste", and refers to the original almond paste ingredient. Bakeries all over celebrate this sugary day. Hopefully your favorite local bakery is participating so you don't have to travel far to indulge in a free macaron!
There are bound to be plenty of others seeking their own free treat today. If you find yourself standing in line waiting, we recommend you pass the time contemplating the complicated world of sales tax and baked goods. No really, it's wildly interesting! We'll help you get started by consider a handful of states.
Like most aspects of sales tax, it's more complicated than you might think. Did you know food isn’t taxed in most states unless it is presented or prepared for immediate consumption? If you buy a heated breakfast sandwich or a toasted bagel to go along with your free macaron, you are going to pay sales tax on your purchase. If, on the other hand, you buy a dozen bagels to go, you'll get them tax-free (this same taxation concept applies in Florida).
It gets more tricky though. In New York when food that is exempt from sales tax is sold in combination with a taxable item for a single charge (such as a gift basket with a loaf of bread and a cutting board), the entire item is subject to sales tax. Craziest of all, when tax-free food is sold in combination with heated food (taxed) on plates or as meals for a single charge, the entire purchase is taxable. That’s a lot to digest!
California has an equally confusing set of rules. In general, food isn’t taxed in California. Back at the bakery, however, if you purchase a cake that includes non-edible decorations, the application of tax depends upon the value of the non-edible merchandise versus the value of the cake. If more than 50 percent of the total retail value of the cake represents the value of non-edible decorations the whole cake is taxed. A similar rule applies to the loaf of bread and the cutting board in the gift basket. If they amount to more than 10 percent of the retail value of the complete package, exclusive of the container the retailer would need to charge tax on bread and the cutting board. In other words, stick with the macarons.
We'll cap this off by heading to Texas where bakery goods aren’t taxed unless you put them on a plate with eating utensils. So if you bought a slice of cake at the bakery, and the baker put it on a plate with a fork and napkin, sales tax is owed on the purchase. That same cake, taken to go, with utensils provided but picked up as you leave the bakery, isn’t taxed.