You should just pay taxes to your city, as long as No transaction of money ( delivery fee, etc) is taking place in the other city.
I'm stil waiting for the state to get back to me. The issue is the difference of opinion of what the "transaction" means. My city is looking at it as exchange of money, in which case the above statement is correct, and the neighboring town looks at it as exchange of goods, thus transaction is completed when cake is delivered, which happens within their city limits. As per my conversation with the state yesterday, the way the regulations are written both interpretations are correct and apparently there is nothing in regulations that specifically addresses deliveries. I'm not inclined to get brides to pick up their multitiered cakes and set them up themselves just to avoid this difficulty. Considering the proximity of our towns, this is not a one time problem.
I did go and get additional business license yesterday, even though when I got there, they told me I really didn't need it and it was ridiculous--proof that right hand does not know what the left hand is doing.