SALT Report 2489 – The New Jersey Division of Taxation updated their guidance regarding the application of sales and use tax to sales of prepared foods sold by food service providers. Generally, New Jersey imposes sales tax on the following items:
- Food sold in a heated state or heated by the seller,
- Food items that are a result of the seller combining two or more food ingredients, or
- Food sold with eating utensils provided by the seller. This includes plates, cutlery items, glasses, cups, napkins, or straws, but does not include containers used for transport
The following items are not considered taxable prepared foods:
- Foods that are only cut, repackaged, or pasteurized by the seller, or
- Eggs, fish, meat, poultry, or foods containing raw animal products that must be cooked by the consumer prior to consumption
Food that is sold in a heated state or that is heated by the seller is subject to tax as a prepared food. “Heated” means any temperature higher than the air temperature of the room or location where the item is sold. An item is not considered sold in a heated state if it is sold from a refrigerated display case and the purchaser heats it in a seller-provided microwave, either before or after paying the seller.
Because food items sold with eating utensils provided by the seller are considered taxable prepared foods, New Jersey uses a threshold test to help determine whether the utensils are provided by the seller, or obtained by the purchaser. Utensils are considered “provided by the seller” if the seller’s annual sales of prepared foods make up more than 75% of its total food sales, this does not include sales of alcoholic beverages.
Bulk items are not taxable if they contain four or more servings, are packaged as one item, and are sold for a single price. Bulk items that meet those criteria are not considered prepared foods even if the seller has eating utensils available. However, the sale of a bulk item will be subject to tax if the seller actually hands the customer an eating utensil to consume the item.
The New Jersey bulletin provides additional guidance regarding the types of food establishments that are presumed to meet the threshold test described above, and how to calculate the percentage of food sales to implement the threshold test.
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