For Here or To Go: California's Sales Tax for Food Products Demystified

By Santa Barbara Merchant Services on Sep 19, 2016 at 09:03 PM in Sales Tax

For Here or To Go: California's Sales Tax for Food Products Demystified

Food sold to go:

When food is sold on a to go or take-out basis, the taxability of the sale will depend in part on whether your sales meet the requirements under the 80/80 rule.

80/80 rule:

The 80/80 rule applies to your business if:
• More than 80 percent of your business’s gross receipts come from the sale of food products (note: alcoholic and carbonated beverages, while taxable, are not considered food products); and
• More than 80 percent of your retail food product sales are taxable because they constitute:
• Sales of food products that you furnish, prepare, or serve for consumption at your place of business (see Food
sold for consumption at your place of business); or
• Sales of meals or hot prepared food products (see Hot prepared food products other than beverages); or
• Sales of food products by a “drive-in.” “Drive-ins” generally offer food products ordinarily sold for immediate consumption at or near a location at which parking facilities are provided primarily for the use of patrons in
consuming the products, even though they may be sold to go.

It is especially important to test for the 80/80 rule if you have just acquired a food service business or started a new food service business. It is important to also test for the 80/80 rule if you have recently changed the product mix in an ongoing business or if there has been a change in how you serve food. For example, you may have started selling more hot prepared food products or extra seating is being provided to customers outside in good weather, thereby increasing the percentage of food served for consumption at your place of business.

Evaluation for the 80/80 rule is done on a location-by-location basis. Thus, if you own multiple locations, one location may fall under the 80/80 rule and another location may not. Each location must be considered separately.

Combination locations such as restaurant-bakeries may be treated differently. (See the Appendix, for more information
on how to test for the 80/80 rule.)

To-go sales that come under the 80/80 rule
Although both criteria of the 80/80 rule may be met, you may elect to separately account for the sale of to-go orders of cold food products. You must report and pay tax on all food and beverages sold to go unless:
• The sale is nontaxable, see Nontaxable sales, or.
• You make a special election not to report tax on to-go sales even though your sales may meet both criteria of the 80-80 rule.

Such sales include:
• Cold food products, and
• Hot bakery goods and hot beverages that are sold for a separate price.
Sales of those products must be separately accounted for and substantiated by supporting documents, such as
guest checks and cash register tapes. The cash register should have a separate key for cold food sold to go or some
other way of denoting such sales. Without adequate documentation, you are liable for tax on such sales. If your sales meet both criteria under the 80/80 rule and you make this special election, you will report to-go sales in the same manner as those who do not meet both criteria under the 80/80 rule (see below).
To-go sales if you do not come under the 80/80 rule
Items sold à la carte
The following information applies only to items sold à la carte. For information on sales of combination packages
(packages that include two or more items sold for a single price), see Combination packages below.
Beverages Sales of the following beverages are not taxable when sold for a separate price to go:
• Hot beverages, such as coffee, hot tea, lattés, mochas, and hot chocolate. Note: Hot soup, bouillon, and consommé are not considered hot beverages. Their sale is taxable (see Hot prepared food products other than beverages below).
• Noncarbonated beverages, such as fruit drinks, milk, and iced tea.
Sales of the following beverages are always taxable:
• Carbonated beverages such as soda or sparkling water
• Alcoholic beverages
Cold food products (other than cold beverages)
Cold food products include cold sandwiches, milkshakes, fruit smoothies, ice cream, cold salads, cold bakery items,
and so forth.
A cold food product sold individually and to go is not taxable. The sale of a cold food product sold as part of a combination
package may be taxable (see Combination packages).
Example: If you sell an egg salad sandwich to go, you are not liable for tax on the sale. However, if you sell an
egg salad sandwich as part of a combination package, you may be liable for tax (see example below).
Hot prepared food products (other than beverages)
To-go sales of hot prepared food products are taxable see Exception for hot bakery items.
A food product is considered a hot food product if it is heated to a temperature above room temperature. Examples
of heating a food product above room temperature include; grilling a sandwich, dipping a sandwich in hot gravy, or
using infrared lights, steam tables, or microwave ovens. Examples of hot prepared food products include hot sandwiches,
pizza, barbecued chicken, soup, consommé, bouillon, steak, and so forth.
Food is considered “hot” even if it has cooled by the time of sale since it was intended to be sold as a hot food.
If your customer buys a cold food product to go and heats the food product in a microwave oven that is accessible
to the public, the sale is not taxable. It is considered a sale of a cold food product to go.
Exception: Sales of hot bakery goods are not taxable when sold to go, unless they are sold as part of a combination
package (see below).
Combination packages
Combination packages are two or more items sold together for a single price. The taxability of your sale depends in
part on the type of combination package being sold.
Packages that include hot items
If a combination package sold to go includes a hot prepared food, such as a hot sandwich or soup, or hot beverage,
such as coffee or hot chocolate, its sale is taxable.
Examples: You sell a combination of hot coffee and a doughnut for a single price of $1.50 or a combination
hot pastrami sandwich and iced tea for $4.50. Because each combination package includes a hot food or hot
beverage, the selling price is taxable.
MARCH 2016 | DINING AND BEVERAGE INDUSTRY 5
Packages that do not include hot items
If a combination package sold to go includes cold food and a carbonated beverage, the portion of the selling price
that represents the carbonated beverage is subject to tax.
If a combination package sold to go includes cold food and a cold beverage other than a carbonated or alcoholic
beverage, the sale of the package is not taxable.
Examples: You sell a value package of a cold sandwich, chips, and iced tea for a single price to go—the sale is
not taxable. You sell the same package with a carbonated soda—the portion of the selling price representing
the charge for the soda is taxable.
Exception—returnable containers. If you sell a combination of cold food products in an individual returnable container
from which the individual serving is intended to be eaten (for example, a glass plate), the sale is subject to
tax. In this instance, the sale is considered a sale of a served meal, which is generally taxable.
Nontaxable sales
Do not report tax on:
• Sales of cold food products sold in a form that is not suitable for consumption on the premises and not eaten on the
premises. A cold food product is not “suitable for consumption on the premises” if it requires further processing
by the customer, or is sold in a size not ordinarily consumed by one person. For example, the sale of a frozen
pizza is not taxable because it requires further processing by the customer. The sale of a quart of potato salad,
a quart of ice cream, or a whole pie would not be taxable because those amounts would not ordinarily be consumed
by one person when sold without eating utensils or dishes for consumption on the premises.
See Regulation 1603, Taxable Sales of Food Products, for more examples of food not suitable for consumption on
the premises.
• Sales that are not subject to tax, such as sales to the U.S. government and sales for resale.

Additional Info:  http://www.boe.ca.gov/pdf/pub22.pdf

Santa Barbara Merchant Services Inc

1912 De La Vina, Santa Barbara, CA 93101

[email protected] 

May 13, 2018 Arrow1 Down Reply
Mark Wyland

Last night I was charged sales tax on top of a 16% added gratuity for 1/2 chicken take out from a local restaurant. Is this acceptable?

Jan 23, 2019 Arrow1 Down Reply
Moni B

I am trying to start a Cottage Food Operation and sell cakes and decorated cookies. The items will be for delivery. Do I need to charge California Sales Tax?







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