(a)

1. (1) The prepared-food sales percentage is used to determine when making utensils available to customers at a self-service station or otherwise constitutes selling food with a utensil provided by the seller, which is taxable at the full state sales and use tax rate as a sale of prepared food.
2. (2) The prepared-food sales percentage is important to sellers that primarily sell prepared food but also sell items that would generally be considered food and food ingredients.
3. (3) A seller must calculate its prepared-food sales percentage to determine when it is providing a utensil to its customers by making utensils available.

(b)

1. (1) If a seller has a prepared-food sales percentage greater than seventy-five percent (75%) (sales of prepared food are greater than seventy-five percent (75%) of total sales of food items), and utensils are made available by way of a self-service station or otherwise, then all food items sold by the seller are considered prepared food and taxable at the full state sales and use tax rate, unless the item meets the serving-size exception discussed in subsection (d) of this section.

2. (2) Establishments that are likely to have a prepared-food sales percentage that is greater than seventy-five percent (75%) include, but are not limited to:

   1. (A) Sandwich shops;
   2. (B) Cafes;
   3. (C) Cafeterias;
   4. (D) Coffee shops;
   5. (E) Diners;
   6. (F) Fast food restaurants;
   7. (G) Mobile food vendors;
   8. (H) Food courts;
   9. (I) Hot dog stands;
   10. (J) Ice cream shops;
   11. (K) Pizzerias;
   12. (L) Restaurants; and
   13. (M) Concession stands.

(c) If a seller has a prepared-food sales percentage that is seventy-five percent (75%) or less (sales of prepared food is less than seventy-five percent (75%) of total sales of food items), then food is sold with an eating utensil provided by the seller and taxable at the full state sales and use tax rate as prepared food only if the:

1. (1) Seller physically gives the utensil to the customer; or

2. (2)

   1. (A) Utensil is generally necessary for the customer to receive or consume the item.
   2. (B) See 26 CAR § 31-103(d).

(d)

1. (1) Items that contain four (4) or more servings packaged as one (1) item sold for a single price are not considered to be sold with utensils unless the seller provides a utensil as detailed in 26 CAR § 31-103(d).
2. (2) Whenever available, serving sizes will be determined based on the label on the item sold.
3. (3) If no label is available, then a seller will reasonably determine the number of servings in an item. Example: A coffee shop sells various bakery items that are made by an unrelated third party. The coffee shop has napkins and straws available on the premises for its customers. The sale of a whole cheesecake (not made by the seller) will not constitute a sale of prepared food unless the coffee shop physically gives a utensil to the customer with the purchase of the cheesecake.

(e)

1. (1) 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 ninety (90) days after the beginning of a tax or business fiscal year.

2. (2)

   1. (A) A seller must be able to provide documentation to support the determination of its prepared-food sales percentage.
   2. (B) This calculation is not to be mailed to the Sales and Use Tax Section of the Revenue Division of the Department of Finance and Administration.
   3. (C) The calculation should be kept on file at your business.
3. (3) A single prepared-food sales percentage will be determined annually for all of a seller's establishments in the state.

4. (4) Calculation of the prepared-food sales percentage. The prepared-food sales percentage is calculated by dividing sales of prepared food by the sum of all sales of prepared food, food and food ingredients, and dietary supplements in the following manner:

   1. (A)

(c) (c) Sold where plates, bowls, glasses, or cups are necessary to receive the item.

1. (ii) Do not include alcoholic beverages in this total;

   1. (B)

      1. (i) Add the dollar amount of all sales of:

(b) (b) Prepared food; and

1. (c) (c) Dietary supplements.

   1. (ii) Do not include alcoholic beverages in this total; and

   2. (C)

      1. (i) Divide the total prepared food sales (amount calculated in subdivision (e)(4)(A) of this section) by the total sales of prepared food, food and food ingredients, and dietary supplements (amount calculated in subdivision (e)(4)(B) of this section) by the seller.
      2. (ii) The resulting percentage is the prepared-food sales percentage.

2. (5)

   1. (A) A new business will make a good-faith estimate of its prepared food sales percentage for its first year.
   2. (B) A new business should adjust its good-faith estimate prospectively after the first three (3) months of operation if the actual prepared food sales percentages materially affect the estimate.
   3. (C) For further guidance, see Appendix A: “Food and Food Ingredients - State Sales & Use Tax Guide”.