Pub 223 Bakeries Flow Chart.pdf
Retailer Sales.Use Tax Food Items.pptx
pb220QuickReferenceGuide.pdf
Food and Food Ingredients are generally Not Taxable
“Food and food ingredient” is defined in sec. 77.51(3t), Wis. Stats., to mean “…a substance in liquid, concentrated, solid, frozen, dried, or dehydrated form, that is sold for ingestion, or for chewing, by humans and that is ingested or chewed for its taste or nutritional value. ‘Food and food ingredient’ does not include alcoholic beverages or tobacco.”
Please take note that exempted food and food ingredients must be for human consumption. Your sales of baked goods or treats for pets are taxable.
Food and food ingredients are exempt from sales tax, except for:
- candy
- dietary supplements
- prepared food
- soft drinks, and
- alcoholic beverages.
Examples of nontaxable food and food ingredients include (not an all-inclusive list):
- canned and preserved foods
- honey
- cured meats
- cereal
- plain nuts
- cheese
- flour, sugar, and other baking ingredients
- spices for human consumption
Note: The terms “candy,” “dietary supplement,” “prepared food,” and “soft drink” each represent a specific type of “food or food ingredient.” Food and food ingredients are generally not taxable, the exceptions are candy, dietary supplement, prepared foods, soft drinks and alcoholic beverages.
We are primarily going to discuss “candy” and “prepared foods” to help you to identify when your sales are subject to sales tax. Your sale of food is not taxable if it does not meet the definitions of candy, prepared foods (according to the flow charts), or they are not dietary supplements (would have a supplement nutrition label).
Sale of Candy is Taxable
“Candy” is defined in sec. 77.51(1fm), Wis. Stats., to mean “…a preparation of sugar, honey, or other natural or artificial sweetener combined with chocolate, fruit, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces. ‘Candy’ does not include a preparation that contains flour or that requires refrigeration.”
To be “candy,” an item must be sold in the form of a bar, drop, or piece. Products that are not sold in the form of bars, drops, or pieces are not “candy.” Common examples of items that are not “candy” because they are not sold in the form of bars, drops, or pieces include cotton candy, pixie sticks, spray candy, frosting in containers, and cake icing in tubes.
Natural and artificial sweeteners include corn syrup, dextrose, invert sugar, sucrose, fructose, sucralose, saccharin, aspartame, stevia, fruit juice concentrates, molasses, evaporated cane juice, rice syrup, barley malt, honey, maltitol, and agave.
If the ingredient label on the product specifically lists the word “flour,” the product is not “candy.” Flour substitutes are not “flour” for purposes of determining whether a product meets the definition of candy.
Items that require refrigeration are not “candy.” However, items that meet the definition of candy but which are sold frozen or refrigerated for the preference of the customer or retailer are still “candy.”
You can quickly determine if your product is NOT candy by reviewing the ingredients of your products such as brownies, sprites and morsels, pastries, cookies, and bars. All items that contain flour do not meet the definition of candy.
Another way to determine if a product you are selling is NOT candy, is if it is not ready to be eaten (i.e., it must be mixed with other ingredients or prepared before eating). For example, hot cocoa bombs are not candy because they must be added to hot milk prior to consumption. Cocoa bombs are a nontaxable food and food ingredient.
Sale of Prepared Food is Taxable
“Prepared food” is defined in sec. 77.51(10m), Wis. Stats., to mean any of the following:
- Food and food ingredients sold in a heated state. Food and food ingredients are sold in a heated state if they are sold at a temperature that is higher than the air temperature of the room or place where the item is sold. Food and food ingredients that are sold unheated by the retailer and heated by the customer are not sold in a heated state.
- Food and food ingredients heated by the retailer, which would include baked goods but the law provides an exception for bakeries. Bakery items made by a retailer, including breads, rolls, pastries, buns, biscuits, bagels, croissants, donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas are not taxable under this criteria.
Other exceptions (products not subject to tax even though they are heated by the retailer) includes two or more food ingredients mixed or combined by a retailer for sale as a single item, sold unheated, and sold by weight or volume.
- Two or more food ingredients mixed or combined by the retailer for sale as a single item, except if any of the following apply:
(a) The retailer’s primary classification is manufacturing, but not including bakeries and tortilla manufacturing.
(b) The item is sold unheated and sold by volume or weight.
(c) The item is a bakery item made by the retailer, including breads, rolls, pastries, buns, biscuits, ba-gels, croissants, donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas.
(d) The food and food ingredients are only sliced, repackaged, or pasteurized by the retailer.
- Food and food ingredients sold with eating utensils that are provided by the retailer of the food and food ingredients, including plates, bowls, knives, forks, spoons, glasses, cups, napkins, or straws. However, a “plate” does not include a container or packaging used to transport the food and food ingredients.
(a) Eating utensils are provided by the retailer if any one of (1) through (3) applies:
(1) The retailer’s customary practice is to physically give or hand the utensils to the purchaser, except that plates, glasses, bowls, or cups that are necessary for the purchaser to receive the food and food ingredients need only be made available to the purchaser.
(2) The retailer’s sales of prepared foods and food for which plates, bowls, glasses, or cups are necessary to receive the food or food ingredients, are more than 75% of the retailer’s total sales of all food and food ingredients and eating utensils are made available to the purchaser.
(3) The retailer sells food items that have a utensil placed in a package by a person other than the re-tailer, unless the primary classification of the person who placed the utensil in the package is manufacturing.
(b) Calculating percentage of retailer’s total sales of all food and food ingredients.
(1) The numerator of the percentage only includes the retailer’s sales of prepared food, and food for which plates, bowls, glasses, or cups necessary to receive the food are made available.
(2) The denominator of the percentage is made up of all of the retailer’s sales of food and food ingredients, including the retailer’s sales of prepared food, candy, dietary supplements, and soft drinks.
(3) Alcoholic beverages are not included in the numerator or denominator.
(4) A retailer must compute the percentage for the retailer’s current tax or business fiscal year based on the retailer’s data from the retailer’s prior tax or business fiscal year, as soon as practical after the retailer’s accounting records are available, but no later than 90 days after the day on which the retailer’s tax or business fiscal year begins.
(5) If a retailer has no prior tax or business fiscal year in Wisconsin, the retailer shall make a good faith estimate of its percentage for the retailer’s first tax or business fiscal year and shall adjust the estimate prospectively after the first 3 months of the re-tailer’s operations if the actual percentage is materially different from the estimated percentage.
(6) For retailers with more than one establishment in Wisconsin, a single determination that combines the information for all of the retailer’s establishments in Wisconsin shall be made annually, and will apply to all of the retailer’s establishments in Wisconsin.
(c) Tax impact based on the percentage being greater than 75% or 75% or less.
(1) If the percentage is 75% or less, utensils are only considered to be provided by the retailer if the retailer’s customary practice is to physically give or hand the utensils to the purchaser, except that in the case of plates, bowls, glasses, or cups that are necessary to receive the food, such items need only be made available to the purchaser.
(2) If the percentage is greater than 75% and utensils are made available to the purchaser, all of the retailer’s sales of food and food ingredients will be considered sales of prepared food.
Exception: An item sold by the retailer that contains 4 or more servings packaged as one item and sold for a single price is only prepared food if (1) the re-tailer physically gives or hands utensils to the purchaser, (2) the retailer makes plates, bowls, glasses, or cups that are necessary for the purchaser to receive the food available to the purchaser, (3) the item is sold heated, or (4) the package contains a utensil placed in it by a person other than the retailer or manufacturer.
Serving sizes are based on the information contained on the label of each item sold, except that, if the item sold has no label, the serving size is based on the retailer’s reasonable determination.
The flowchart and related notes on pages 60 and 61 of WI Dept of Revenue Publication 220, Grocers, can be used to help determine if the product being sold is “prepared food” and subject to Wisconsin sales or use tax.
Bakery Sales
The taxability of bread, cakes, cookies, donuts, rolls, and other foods made and sold by a bakery depends on whether the items are sold heated or otherwise meet the definition of prepared food.
Prepared food, as provided in sec. 77.51(10m)(a)2., Wis. Stats., includes food and food ingredients heated by the retailer, unless an exception in sec. 77.51(10m)(b), Wis. Stats., applies. Bakery items made by the retailer, as provided in sec. 77.51(10m)(b)3., Wis. Stats., are an exception and are excluded from being prepared food. Bakery items include breads, rolls, pastries, buns, biscuits, bagels, croissants, donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas. Therefore, your sales of bars, brownies, and cookies (i.e., bakery items) that are sold unheated without eating utensils, are not prepared food and exempt from Wisconsin sales and use tax.
Bakeries are one of the exceptions in the Prepared Foods flow chart (Steps 5 & 6) found in the Grocer’s sales tax Publication 220.
The taxability of bread, cakes, cookies, donuts, rolls, and other foods made and sold by a bakery depends on whether the items are sold heated or otherwise meet the definition of prepared food.
See the “Retail Sales of Bakery Products by Bakeries” Flow Chart found in WI Dept of Revenue Publication 223, Bakeries. This flow chart provides a much easier way to determine the tax treatment of your baked goods.