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When Is Food Taxable in California?

author photo of Monika Miles

The general rule for California is that all sales of tangible property are taxable unless there is a specific exemption. Food is one thing that is generally exempt. Your weekly grocery visits most likely do not have sales tax on the receipt (except for certain things such as candy, pet food, or non-food items). But establishments such as restaurants, diners, bars, and food trucks (or basically anybody selling or delivering food) have a more complicated task in determining whether they should be collecting sales tax on their food sales. There are many factors that must be considered in determining the taxability of food. So if you’ve ever wondered why certain foods are taxed and others not you’ve come to the right place.

There are really two concepts to consider when determining if there will be sales tax or not; the temperature of the food and where it will be consumed. Let’s run through a few scenarios to make this an easier process to understand. To set the scene, let’s assume you’re visiting a local sandwich shop that is also a bakery.

Example 1: You buy a hot pastrami sandwich and eat at the sandwich shop.

Prepare to see sales tax on your receipt. Heated or hot prepared food is taxable regardless if it is consumed on the restaurant premises or taken to-go.

Example 2: You buy a cold turkey sandwich. You don’t get it toasted and order it to-go.

Congratulations, you’ve avoided California’s sales tax plus any local sales tax rates. Generally if the food is cold or room temperature and not consumed on premises then it won’t be taxed. However, if you decide to eat at the sandwich shop then you will be paying sales tax. However, if the sandwich were toasted or heated, the transaction would have been taxable regardless of where the sandwich is consumed.

Example 3: After your sandwich, you line up again to buy a freshly baked hot croissant and take the order to-go.

Here’s an exception to the hot or heated food rule. There is an exemption for hot baked goods if taken to-go. But they are taxed if eaten on premises. Let’s say one of the specials is a combo meal of a hot croissant with either a hot beverage (such as coffee or tea) or hot prepared food (maybe a warm breakfast sandwich) then the entire combo is taxed.

Example 4: You decided to stay in and have food delivered. Will your food and delivery charge be taxable? Yes, if you order hot food to go. No, if you order a cold entrée. (The delivery charge taxability generally follows the taxability of the item delivered – but there are also exceptions to this rule – so be careful.)

Confused? We’ve structured these examples from the consumer’s perspective. Imagine if you are a food service business that must interpret these rules! Just when you think you’ve got it, there are other ways that something might be taxable as well.

For example, there’s a concept called the 80-80 rule which would subject all the sales of a food seller to sales tax. This rule states that if 80% or more of the seller’s gross receipts are from food products and if 80% or more of the sales of food products are considered taxable then a business must charge sales tax on all food sales. As a food seller, depending on your business this could be a complex process. What if you’re not a typical restaurant? What if you’re a food truck? What if you deliver your food or have it catered? These businesses might be wondering what’s considered “for here” and what’s considered “to-go?” It’s not all gravy for food service businesses when faced with staying in compliance with sales tax!

Do you have questions about California (and/or multi-state) sales tax - or does your business need assistance with other tax issues? Monika welcomes inquiries from SalesTaxSupport.com users and offers a complimentary 30 minute consultation to companies with multi-state activities. Please use the "Request a Consultation" link on FIRM PROFILE page to submit your question or consultation request.

Other recent “California (CA)” posts by Monika Miles, CPA:

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Comments

4 Responses to When Is Food Taxable in California?

  • Posted by Eileen on September 20, 2016 11:57am:

    If we are a non profit wanting to sell hot food and soda, how do we document the taxes for it?

    • Posted by Author photo of Monika Milesmonikamiles on September 27, 2016 4:07pm:

      Eileen,
      Thanks for your question. Sales tax is so facts & circumstances driven that I really need to know more about what else you're doing to determine how best to assist you. This forum is great for "one-off questions" but to truly answer your question, I'd need more data. Please feel free to contact me directly.

  • Posted by Annette on March 9, 2015 6:10pm:

    What a crazy system! Thanks for the nice examples.
    And it can be worse as we saw in the Target case where a customer sued for charging sales tax on hot coffee to go!
    Simplification of this in California would be difficult. The best solution is either to tax all food or tax no food. The later is too expensive to enact. The former is only possible with a constitutional change (so not impossible, such as via a ballot initiative).
    The food tax exemption represents significant dollars. The rationale for it is that food is a necessity of life. But, higher income individuals spend a lot more on food so get a great benefit from the exemption. Perhaps all should be taxed and an earned income or elderly credit given to low-income individuals.

    • Posted by Author photo of Monika MilesMonika Miles, CPA on March 10, 2015 3:36pm:

      Thanks Annette! It seems that there should be a way to make some simplifications. The whole hot food, cold food, bakery exemption and 80/80 rule is enough to make us all shake our heads. And in our economy where more things are for customer convenience, including delivery, it can be difficult to keep track of all the rules - let alone account for it all correctly. Yet, as we know, the burden of proof under audit is on the taxpayer - so clients must make every effort to get it right. Welcome to the state of confusion! Glad to help with the navigation!

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