Streamlined Sales Tax

State of Rhode Island
Division of Taxation
One Capitol Hill
Providence, RI 02908

IMPORTANT NOTICE FOR RETAILERS OF FOOD
PREPARED FOOD
STREAMLINED SALES TAX
Effective January 1, 2007

 

The new law imposes sales tax on “prepared foods”. For the most part the items subject to the tax as prepared food will remain the same. However there are some changes in single serving items sold by convenience stores and grocery stores and bakery items sold by bakeries whose business is generally a bakery and not a coffee shop. In addition other smaller changes have occurred. The old law taxed food “ordinarily sold for immediate consumption on or off the premises of the retailer.” The new law taxes prepared food.

Prepared Food

Under the current law prepared food is subject to sales tax and is defined as food sold for “immediate consumption”. Under the Streamlined Sales Tax the definition of prepared food has changed.
“Prepared food” is defined in any one of the following ways:

A. Food sold in a heated state by the seller

B. Food items that are a result of the combination of two or more food ingredients

by the seller to make single item except:

1. Food that is only cut, repackaged, or pasteurized by the seller; or

2. Eggs, fish, meat, poultry, and foods containing these raw animal foods requiring cooking by the consumer as recommended by the Food and Drug Administration; or

3. Food sold in an unheated state by weight or volume as a single item unless sold by the seller with utensils; or

4. Bakery items sold as such, including but not limited to, bread, rolls, buns, biscuits, bagels, croissants, pastries, donuts, Danish, cakes, tortes, pie, tarts, muffins, bars, cookies, and tortillas unless sold by the seller with utensils; or

5. Food sold by a seller that is primarily a manufacturer (NAICS Section 311), except Bakeries (Section 3118) unless sold by the seller with utensils

C. Food sold with eating utensils (plates, cutlery items, glasses, cups, napkins or straws. Plates do not include containers for transport).

The following rules has been adopted by the Streamlined Sales Tax Governing Board to determine how utensils are treated and their impact on the sale of various food items. Under the approved interpretation, a 75% Threshold Test was created to add consistency to the meaning of the term “provided by the seller.” The Division is required to use this test in making determinations of the taxability of prepared food and beverage sales. The calculation is as follows:

The numerator includes sales of (a) prepared food under A and B of the definition of prepared food; and (b) food where plates, bowls, glasses or cups are necessary to receive the food (e.g., dispensed milk, fountain beverages, salad bar). Alcoholic beverages are not included in the numerator.

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 denominator.

The following is the application of the Threshold Test:

• For sellers with a sales percentage of 75% or less, utensils are provided by the seller if the seller’s practice for the item (as represented by the seller) is to physically give or hand the utensil to the purchaser, except that plates, bowls, glasses, or cups necessary for the purchaser to receive the food (e.g., dispensed milk, salad bar) need only be made available.
• For sellers with a sales percentage greater than 75%, utensils are provided by the seller if they are merely made available to purchasers. Thus, utensils at a kiosk or common area are treated as utensils “provided by the seller.”
• For sellers with a sales percentage greater than 75% who sell items that contain four (4) or more servings packaged as one item sold for a single price, an item does not become prepared food due to the seller having utensils available (e.g. ground coffee, whole cakes, loaves of bread). However, if the seller provides utensils for the item as in 3 above, then the item is considered prepared food. Whenever available, serving sizes will be determined based on a label on an item sold. If no label is available, a seller will reasonably determine the number of servings in an item.
• When a seller sells food items that have a utensil placed in a package by a person other than the seller, and that person’s NAICS classification code is that of a manufacturer (sector 311), the seller shall not be considered to have provided the utensil except as provided in 1-3 above.
• For any other packager with any other NAICS classification code (e.g., sector 722 for caterers), the seller shall be considered to have provided the utensil.
• The prepared food sales percentage will be 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 accounting records are available, but not later than 90 days after the beginning of the tax or business fiscal year.
• A single prepared food sales percentage will be determined annually, for all of the seller’s establishments in a state.
• A new business will make a good faith estimate of their prepared food sales percentage for their first year. A new business should adjust its good faith estimate prospectively after the first three months of operation if actual prepared food sales percentages materially affect the 75% Threshold Test.

 

If a business is having a difficult time determining if a particular item is prepared food please refer to the chart (PDF Document).