SALT Report 3110 – The Washington Department of Revenue issued guidance regarding the 75% rule that applies to sales of prepared foods. Generally, if a seller’s total sales of prepared foods are greater than 75%, the seller is required to collect sales tax on all food sales.
However, the Department provides an exception to this rule for food or food ingredients that contain four or more servings that are packaged for sale as a single item and are sold for a single price. These items are not subject to sales tax, even if the business exceeds the 75% threshold. In this scenario, the number of servings in a package of food or food ingredients is determined by the manufacturer’s label. If no label is available, the seller must reasonably determine the number of servings.
If the seller has multiple locations, they can choose to either calculate a separate percentage of prepared food sales for each location, or one overall percentage combining sales figures from all locations in the State. However, once a seller chooses a calculation method they must continue to use that method for all future calculations unless written consent to change methods is granted by the Department.
If a seller does not collect sales tax on all of its food sales, they must be able to prove to the Department that their prepared food sales fall below the 75% threshold, otherwise they will be held liable for all uncollected sales tax on their total food sales.
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