My wife and I own a sandwich shop where we sell hot and cold sandwiches. Because of our small size, all of our sales are to-go.
We are confused about sales taxes – we thought food sold to-go was not subject to sales tax, but someone just informed us that we might have to collect sales tax on our to-go sandwiches.
Should we be collecting the sales tax?
Tax laws are complicated, and the rules on food sales taxes can be confusing.
The law treats food types differently based upon where the food will be consumed, the temperature of the food, and those rules can differ even more, depending upon the temperature of the condiments sold with the food.
Sandwiches can be even trickier than other foods, because you might sell one cold sandwich and one hot sandwich to the same customer at the same time, and only a portion of that customer’s order would be subject to sales tax.
Many business owners think that sales tax applies only to food products sold for consumption on the seller’s premises, while orders to-go are not subject to sales tax.
What business owners may not know is that even food sold to-go can be subject to sales tax, because the temperature at which the food items are sold can make the difference between a taxable and non-taxable sale.
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Sales tax applies to all to-go food products served hot and hot merely means that the food is intended to be sold above room temperature, regardless of cooking method.
Under the law, food is still considered hot even if it was initially warm for sale but has cooled down by the time it is sold. Tax also applies if you sell a cold food product with a hot dip or condiment, like a French dip sandwich in hot au jus.
Interestingly, no sales tax applies to the sale of to-go food sold at a cold temperature, but which is intended to eventually be eaten warm, if the customers heat up the food themselves.
This is true even if the appliance which the customer uses to heat the product is located on your business’s premises.
A common example of this would be the cold burritos sold at convenience stores, where a microwave is provided for the customers’ use.
Many of your take-out sandwiches are probably not subject to sales tax, because they are sold cold, for consumption off-premises; however, if you are selling hot paninis or French dip sandwiches with warm au jus, you may find yourself in a taxable situation.
For small businesses, understanding the effect that retail food’s temperature has on its taxability is critical to complying with its sales tax reporting and payment requirements.
Doing so correctly can help reduce the chance that your business will experience an unexpected and potentially devastating tax liability.
This column was co-authored by Matthew Stevens, JD, LLM, EA, an associate attorney with Myers & Associates, LLP, who practices tax law.