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Why Buying a Cake Can Be Tricky with Wisconsin Sales Tax

  • Feb 12, 2016 | Stephanie Faris

Cakes are an important part of every celebration. From office birthday parties to holiday get-togethers, they make the perfect shareable dessert for any group. While you can save money and bake your own cake at home, consumers often turn to professional bakers for their most important celebratory treats.

Unfortunately, bakery cakes can be expensive, especially when sales tax is added onto the total. In Wisconsin, where food is generally tax exempt, sales tax calculations on cakes can be complicated.

While prepared food sold in restaurants is excluded from this tax exemption, bakery cakes fall into that gray area, sometimes requiring sales tax and sometimes not, especially since they’re often sold in grocery store bakeries. Here are a few things to know about cakes and Wisconsin sales tax.

Heated vs. Non-Heated

For a food item to be taxed under Wisconsin sales tax rules, it must fit the definition of “prepared,” which can be tricky to determine. If an item is heated or is handed to customers with a utensil, it usually must be taxed. Bakeries for which prepared foods comprise 75 percent or more of their total sales will likely also pay sales tax on every baked item they sell.

Since cakes generally aren’t consumed by customers at the place of purchase, they often don’t meet the definition of prepared foods under Wisconsin law. Cakes are often prepared well in advance of their purchase and left to sit on bakery shelves and in display cases for hours at a time. However, when businesses add non-tax-exempt items like candy to their cakes, they’ll be required to pay sales tax on the candy they purchase as ingredients.

Ice Cream Cakes

Ice cream is another non-tax-exempt food item often combined with cakes. Prior to 2009, ice cream cakes were only subject to sales tax if the cake was consumed on the premises. However, in 2009, the laws were changed to determine taxability by whether or not the cake was considered “prepared food.”

Generally speaking if an ice cream cake is prepared by the bakery itself, it is taxable as prepared food. However, if the cake is prepared elsewhere and shipped to the retailer for sale, the purchase is tax-exempt in the same way other non-prepared foods in the state are tax-exempt.

One notable exception to the prepared food exemption is the utensil test. If a premade ice cream cake is served to customers using utensils or otherwise handed over to the customer to be consumed on the premises, it will require sales tax.

Quantity is also an issue with cakes of all types under WI sales tax laws. If it has less than four servings or is sold without packaging, a retailer will likely be required to charge sales tax on the purchase.

Determining whether a cake should be taxed can be tricky in Wisconsin. In general, if the item is packaged and handed to the consumer without utensils, it is considered tax exempt. However, once elements like ice cream are introduced, bakeries could find themselves subject to sales tax laws on prepared foods.

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
Stephanie Faris
Avalara Author Stephanie Faris