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new exemption from State sales and use tax on bakery items

post #1 of 16
Thread Starter 

I'm a newbie on here and have been jumping through fire hoops to get my cake biz up, running and legal. On doing some research through the IRS, taxes, etc. I find that NC is exempt from States sales and use tax as of 2009 if (IF) you do NOT provide eating utensils when you sale your bakery items! You only have to charge your local taxes! (2% in my area)..Now I know why the local grocery store where I just resigned from as a cake decorator puts a cake server on every cake they sale or spoons taped on every single parfait they sold..MORE money that they can legally charge you the customer without having a clue..and all this time i thought they were just being supernice to their loyal customers..hahaha..should have figured it had something to do with a dollar figure..Anyways..I love this site and will let you guys know how things progress with my storefront that i hope to open in March 2013!!

post #2 of 16
If they were exempt if they didn't give them utensils, why are they taping them on? I'm confused. Lol
post #3 of 16
Thread Starter 

it makes them NOT exempt from charging full taxes by putting a server on each oneicon_eek.gif..a customer only has to pay 2% tax if no utensils but the full sales tax if they DO have one..i wont be giving utensils when i sell cakes or cookies and can get by with only charging my customers 2% !icon_biggrin.gif

post #4 of 16

Are you accusing the place where you worked of charging sales tax (since they provided eating utensils with the food items) and pocketing the money?

 

I'm just curious what you think is going on.

~ Sherri
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~ Sherri
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post #5 of 16
Thread Starter 

i think it is a slick marketing tool. they can use it to their advantage and get by with legally charging more taxes. THEY themselves don't get to pocket any extra so why do they do it wonder?


Edited by sweetcreationsb - 1/1/13 at 8:40pm
post #6 of 16
Quote:
Originally Posted by sweetcreationsb View Post

i think it is a slick marketing tool. they can use it to their advantage and get by with legally charging more taxes.
Charging more taxes only serves to make them more expensive than the competition without increasing their bottom line, since all sales tax revenue must be remitted to whichever entity is owed the tax (state, county, city, etc.).
post #7 of 16
Thread Starter 

no accusations at all..i just read about the exemption if you do NOT provide anything and it made a lightbulb go off of why they are so adamant about putting a server on every cake box and a spoon on every parfait..Even had notes posted everywhere to NOT forget?!

post #8 of 16
Wow!! That's crappy!
post #9 of 16
Quote:
Originally Posted by sweetcreationsb View Post

no accusations at all..i just read about the exemption if you do NOT provide anything and it made a lightbulb go off of why they are so adamant about putting a server on every cake box and a spoon on every parfait..Even had notes posted everywhere to NOT forget?!

 

Stores don't get to pocket sales tax.**  This likely had to do with how the registers were programed and possibly state SNAP laws.  If the store had a hot deli and a station with utensils available, then those baked goods could have been seen by tax officials as "for in store consumption."  By attaching the utensils to the packages, they may have been avoiding customer confusion in tax rates.  A single incident could have set that precedent.  Also, those little add-ons would increase impulse buying.  Someone may have been in looking for a last minute dessert for an event away from home.  Having utensils right on the item might (and likely did) tip the scale towards purchasing.  Any smart retailer is looking to capitalize on impulse buys as much as possible.  For example, I've worked in a major retailer's produce department.  They push the heck out of having sliced watermelon on the shelves during the summer.  A quarter of a melon, sliced into wedges, costs almost as much as a whole melon.  Profit city and customers snatched them up as fast as we could slice them on hot days.  Impulse, value added, convenience products make money :)

 

**Disclaimer:  My state does give a small rebate in sales taxes if the taxes are filed by a certain date.  Any retail establishment with half an ounce of business sense would take advantage of that small bonus.  Other states may or may not have the same rebate.

post #10 of 16
Thread Starter 

you are right jason..looks like a decent price when compared to their competitors! its all about improving sales which is even true with us..but the intensity of making SURE they were placed on each cake in the case makes more since to me now since I read the technical bulletin from the state.

post #11 of 16
Quote:
Originally Posted by sweetcreationsb View Post

you are right jason..looks like a decent price when compared to their competitors! its all about improving sales which is even true with us..but the intensity of making SURE they were placed on each cake in the case makes more since to me now since I read the technical bulletin from the state.
You have it backwards, the sales tax makes the grocery store's bakery items more expensive without providing them any kind of benefit (unless they break the law and keep the sales tax instead of remitting it).

From my reading it sounds like the exemption only applies to "artisan bakeries", where 80% of gross receipts come from bakery items. Since a grocery store would not fit that criteria all bakery purchases would be taxable regardless of whether or not they included utensils.

http://www.dornc.com/practitioner/sales/bulletins/section19.pdf
post #12 of 16
Thread Starter 

phew! you are probably right again jason. i was reading from this and it was con-fus-ing! either way..i now know what i can charge and that is 2% for my area.

 

under a. and b. of the definition of prepared food; and (2) food where plates, bowls, glasses, or cups are necessary to receive the food. The denominator includes sales of all food and food ingredients, including prepared food, candy, dietary supplements, and soft drinks. Alcoholic beverages are not included in the numerator or denominator.

The prepared food sales percentage is determined annually for all of the seller’s establishments in the State. The percentage is calculated by the seller for each tax year or business fiscal year, based on the seller’s data from the prior tax year or business fiscal year, as soon as possible after records are available, but not later than 90 days after the beginning of the tax or business fiscal year. A new business should make a good faith estimate for its first year and adjust the estimate after the first three months of operation if actual prepared food sales percentages materially affect the 75% threshold test.

(2)

For sellers with a sales percentage of 75% or less, seller’s customary practice is to physically give the utensil to the purchaser, except that plates, bowls, glasses, or cups necessary for the purchaser to receive the food or food ingredients need only be made available.

(3)

For sellers with a sales percentage greater than 75% who sell items that contain four or more servings packaged as one item for a single price, an item does not become prepared food due to the seller having utensils available. However, if the seller provides utensils for the item as in (2) above, then the item is considered prepared food. Serving sizes are determined based on the label on the item, if available, or based on the seller’s reasonable determination.

post #13 of 16
Thread Starter 

its all so confusing to me..i just know im able to charge 2% and it will be right..thanks for your input jason..i'm sure you are more knowledgeable than me.

under a. and b. of the definition of prepared food; and (2) food where plates, bowls, glasses, or cups are necessary to receive the food. The denominator includes sales of all food and food ingredients, including prepared food, candy, dietary supplements, and soft drinks. Alcoholic beverages are not included in the numerator or denominator.

The prepared food sales percentage is determined annually for all of the seller’s establishments in the State. The percentage is calculated by the seller for each tax year or business fiscal year, based on the seller’s data from the prior tax year or business fiscal year, as soon as possible after records are available, but not later than 90 days after the beginning of the tax or business fiscal year. A new business should make a good faith estimate for its first year and adjust the estimate after the first three months of operation if actual prepared food sales percentages materially affect the 75% threshold test.

(2)

For sellers with a sales percentage of 75% or less, seller’s customary practice is to physically give the utensil to the purchaser, except that plates, bowls, glasses, or cups necessary for the purchaser to receive the food or food ingredients need only be made available.

(3)

For sellers with a sales percentage greater than 75% who sell items that contain four or more servings packaged as one item for a single price, an item does not become prepared food due to the seller having utensils available. However, if the seller provides utensils for the item as in (2) above, then the item is considered prepared food. Serving sizes are determined based on the label on the item, if available, or based on the seller’s reasonable determination.

post #14 of 16
Thread Starter 

here is what i was reading..i'm sure you are correct again..thanks for letting me know..its very confusing!

 

under a. and b. of the definition of prepared food; and (2) food where plates, bowls, glasses, or cups are necessary to receive the food. The denominator includes sales of all food and food ingredients, including prepared food, candy, dietary supplements, and soft drinks. Alcoholic beverages are not included in the numerator or denominator.

The prepared food sales percentage is determined annually for all of the seller’s establishments in the State. The percentage is calculated by the seller for each tax year or business fiscal year, based on the seller’s data from the prior tax year or business fiscal year, as soon as possible after records are available, but not later than 90 days after the beginning of the tax or business fiscal year. A new business should make a good faith estimate for its first year and adjust the estimate after the first three months of operation if actual prepared food sales percentages materially affect the 75% threshold test.

(2)

For sellers with a sales percentage of 75% or less, seller’s customary practice is to physically give the utensil to the purchaser, except that plates, bowls, glasses, or cups necessary for the purchaser to receive the food or food ingredients need only be made available.

(3)

 

For sellers with a sales percentage greater than 75% who sell items that contain four or more servings packaged as one item for a single price, an item does not become prepared food due to the seller having utensils available. However, if the seller provides utensils for the item as in (2) above, then the item is considered prepared food. Serving sizes are determined based on the label on the item, if available, or based on the seller’s reasonable determination.

post #15 of 16
Thread Starter 

too confusing for me..i'm sure you are right jason! thanks!

For sellers with a sales percentage of 75% or less, seller’s customary practice is to physically give the utensil to the purchaser, except that plates, bowls, glasses, or cups necessary for the purchaser to receive the food or food ingredients need only be made available.

(3)

 

 

For sellers with a sales percentage greater than 75% who sell items that contain four or more servings packaged as one item for a single price, an item does not become prepared food due to the seller having utensils available. However, if the seller provides utensils for the item as in (2) above, then the item is considered prepared food. Serving sizes are determined based on the label on the item, if available, or based on the seller’s reasonable determination.

(4)

 

 

If a person other than the seller originally placed the utensil in the package, and that person’s North American Industry Classification System (NAICS) classification code is that of a manufacturer, the seller is not considered to have provided it to the purchaser when the package is transferred to the purchaser unless the seller exceeds the "75% test." (Example: ready-to-eat lunches or snacks containing utensils that were placed in the package by the manufacturer.)

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