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Calling VA "legal" home-based bakers - Page 4

post #46 of 87
I would be interested in the cake club also. Formerbuckeye I am also a neighbor of yours, Petersburg, I am interested in getting home inspection as well but haven't taken any action yet. I just recently got back into cake decorating and trying to learn the new techniques.
post #47 of 87
I just got off the phone from the Va Dept of Tax and they said that I am supposed to be charging 5% Sales Tax because I am considered a caterer. Even though I'm not and I only do cakes, the state still classifies me as a caterer. So for anyone out there figuring their tax at 2.5%, apparently that is wrong! Luckily I found out now that I only had 2 orders and not in 6 months when I've had a lot more.
post #48 of 87
I was just about to post this, too...It's 5%, not 2.5% for prepared foods. The 2.5% came a few years ago when they were reducing the sales tax rates for certain things, but prepared foods are still taxed at the 5%. If you buy the ingredients you pay 2.5%, but we have to charge our customers 5% when we collect the tax from them. When you pay your sales tax you fill out the form that asks if you had any food sales, and that should be 0 because our product isn't the raw ingredients, so technically doesn't fall under the food category rate.

They do give you a 2.5% discount (dealer's discount) that reduces the amount that you pay to the state to pay you back for the sales tax that you paid for the raw ingredients, but I'll bet it still ends up in the state's favor somehow!
post #49 of 87
Okay, I went round and round with them about this last summer. They finally concluded (several phone calls later) that because I am a home baker for cakes, not preparing foods on site, that I am not considered a caterer and thus qualifying for the 2 1/2 %. This is what I have been filing, and haven't heard otherwise (including 2007 tax return). I have the guy's name I spoke to around here, but I am definitely going to call and double check--I'd hate to be audited and have been wrong all this time icon_cry.gif
post #50 of 87
I think this is just another example of failings in the bureacracy of the state (and I work for the state of VA, so I guess I can complain about the inadequacies! icon_wink.gif ) I think they told you incorrectly though, b/c as it has been explained to me many times....... prepared food and convenience food is sold with the 5% tax....even if you don't prepare it on site. Raw and unprepared foods from the grocery are taxed at 2.5%
This makes some sense, really. Often a caterer doesn't prepare any of their food onsite either. For example, we have a woman that prepares all of our lunch meeting food (sandwiches, usually) at her home (often including cakes and cookies, for that matter) and then drops it all off to us in the lobby. We take it upstairs and set it out and serve it ourselves, so really she hasn't done anything more than make it ahead of time, at her home, and then come drop it off.....same as you or I would do with a cake or dessert. Yet we are taxed at the 5% prepared food rate......actually the 9 1/2% prepared food rate that is the current rate in Richmond City.
Actually, one gruff state employee told me "If the bakery is charging 9 1/2% tax on a wedding cake that they make, what makes you think your wedding cake would be taxed any differently?" Hmmmm.......
Clearly there is a lot of confusion among the state employees that are supposed to know the rules, as they are all telling all of us different things.
I guess I would just keep the date and name of the person you talked to, so that at least you have some documentation to offer if they ever try to question what you are doing.
Be careful though and don't assume that acceptance of your tax return is a guarantee of being "correct". The state charged me an extra $270.00 in taxes this year, because of an accidental computing error on my 2003 taxes that they just got around to finding.......
Good luck to everyone trying to figure this out!
Heather
post #51 of 87
I was on the phone with the Dept of Tax for literally one hour and 90% of that time was on hold because the person was checking out what rate I was actually supposed to be at. So yes, they need to make things a little better explained. I also asked about whether or not I can be considered tax exempt for my ingredients so they are not taxed twice and she said yes, so I will definately get that rolling! And finally I asked about deposits, whether you have to count them in the month you got them or the month when you receive the final payment. She said you count it in the month of the final payment. I know this doesn't have anything to do with what we're talking about but figured it might help someone who is unsure like I was! thumbs_up.gif
post #52 of 87
Ai-yi-yi...I'm not sure that's right about the deposits, that would be an IRS question. I'm going to ask my accountant friend if she knows the answer tonight and I'll post what she says.

And the tax rate is 5%, I remember when they were changing the food sales tax rate and it was very explicit that prepared foods and catering would still be 5%, but they were decreasing the tax on raw ingredients. I remember the discussion because I was mad that I'd still be taxed at the higher rate! icon_mad.gif
post #53 of 87
Okay, IRS publication 538 says that if you use the cash method of accounting you have to report income when it's made available to you, so I assume that means that deposits count as income when you receive them. Go to www.irs.gov and go the the small business section, or directly to publication 538. There are different rules for different accounting methods, but I've always used cash because I have no inventory. Maybe it depends on whether the deposit is non-refundable or not, too! I'll ask my friend tonight, she has no idea what's in store for her, hee hee!
post #54 of 87
Okay...My accountant friend said that if you use the cash method of accounting, you count deposits in the month that you receive them, just like any other form of income. If the money is availble to you and in your possession, then it's income for when you received it. The balances would be in the month that you receive those. She mentioned something about the accrual system being similar for the deposits, but I didn't get into that with her.

She did say that the most important thing for the IRS is that once you choose a system for your accounting, you should stick with it year to year. They don't like it when you change systems without a reason for changing. I use the cash method because I don't have inventory, and it's easier to deal with in general.
post #55 of 87
Thanks costumeczar! Between all of us we might get this figured out eventually! Nice how when we do get it down pat we will know more than 90% of the people that work for the state! icon_rolleyes.gif
post #56 of 87
Ok according to the tax sight in regards to the sales and use tax here is the following information. It can be read literally either way. We are Bakeries not Caterers for the simple fact that VA doesn't allow licensing of home caterer's.

Retailer Classifications

The reduced sales tax rate will apply to foods that are deemed eligible under the federal food stamp definition without regard to the nature of the retailer making the sale of the food or whether the retailer participates in the federal food stamp program administered by the USDA.

Generally, the following retailers should charge the reduced sales tax rate on sales of eligible food and beverages: bakeries, cafes, cafeterias, convenience stores, delicatessens, department stores, diners, doughnut and pastry shops, drug and sundry stores, farmer's markets, grocery stores, ice cream shops, lunch counters, mail order companies, supermarkets, sandwich shops, snack bars, specialty meat and produce stores, video stores, and weight reduction establishments.

Exceptions

Some vendors are presumed sellers of food for immediate consumption and may not impose the reduced sales tax rate on sales of eligible foods. These include caterers, concession vendors, entertainment facilities (theme parks, sports arenas, stadiums), fair and carnival vendors, gift shops, hamburger and hot dogs stands, honor snack vendors, ice cream stands and trucks, mobile food vendors, movie theaters, newsstands, and vending machine vendors.


So because this has come up, I called the Dept of Taxation to find out what the deal was. If I remember correctly on my business license I'm listed as a Home Bakery. She said it's all up to the individual interpretation of the person who would be doing the audit (if you were to be audited). She said what I should do is write in and request a ruling to get some clarification. They will decide at that point if it is the 2.5% or 5%. She said she could understand why we would get the impression it is supposed to be done at 2.5% according to this Bulletin.

I'm going to request a ruling. She said it's going to take them some time because they are going to have to do some research. But I would like to know officially what I am supposed to be charging. Right now I've only done the 2.5% because I'm a bakery, not a caterer.
post #57 of 87
My business license says "reatil cakes," not home bakery. Maybe it's up to the person who fills them out to decide what random assignment to give you! icon_wink.gif

I'd still charge the 5% unless you can get something in writing, because if you're delivering a cake that's intended to be eaten then, I'd assume that it would fall under the "immediate comsumption" exception. I'm also paranoid that I'm going to get audited, so I'd rather charge the 5% now and not get slammed in case the person who ends up auditing me decides that I've been doing it wrong!

I suspect that the bakery listing in the list of reduced rate venues was because grocery stores with bakeries lobbied for the reduced rate on their bakery products along with the reduced rate for the rest of their food items. I'd guess that if you don't have a storefront they'll end up saying that we're producing "immediate consumption" foods.

However, if you get something in writing that says otherwise let me know so that I can get a copy!

On an aside, I once called them to ask if I should be charging a sales tax on delivery fees, and their answer was that it was "up to me." icon_confused.gificon_confused.gif Since when does the state leave anything left up to us? I charge tax on everything just to cover my own butt!
post #58 of 87
Yeah you bring up a good point on the delivery fee issue. I was wondering the same thing. That is a real gray area. Guess next time I get pizza delivered I'll check and see if the tax is on the price or price with delivery .. icon_smile.gif
post #59 of 87
Wondering just how long it's supposed to take to get your health inspection packet in the mail here in central VA...Costumeczar, I am trying to figure out how to pm you to ask for the email of the inspector you mentioned, but for the life of me I can't see how to pm on this site!! Can anyone help?

I'm kind of impatient for the packet since I called & spoke to someone in the Dept. of Ag. a week ago, then called back when I didn't receive a packet about 4 days later, and they put me in touch with a different rep who said it wasn't "a high priority" for her to send out packets but that she'd do it when she got around to it. So beware, those of you who call and speak with a person named Emma at the Dept. of Ag! I called right back & asked to speak to another person who told me she'd send a packet to me "right away". Mail within Richmond should take about 2 days tops, and it has now been 2 and I still have no packet.

Did anyone else have trouble just getting this info in the mail??? I am about to drive down there and speak to someone personally. Do they want us not to be legal or what??
post #60 of 87
ok RELAX

Emma is actually really nice. It takes a little while for the packets to get sent out as well as for them to receive them once you send them back.

They are not in Richmond so it is longer then a day or so especially with snail mail. Everything is done through the office so unfortunately the inspector isn't going to drop by with the packet.

Give it another day or so and if you don't see it just call them again and tell them you need a packet sent out to you.

Relax you've got time icon_smile.gif It's going to take you a bit of time to go through the whole thing and gather all the info they want so be forwarned...lol
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