Wednesday, May 13, 2009

Taxing Fro-yo?

Fro-yo girl here. Have you ever noticed that some fro-yo shops in California charge you for tax and others do not? Some places even ask you if you plan to take it to go or dine in, and they charge you tax if you dine in. Is it legal to tax fro-yo? Why do some, but not all, fro-yo shops charge tax?

To answer those questions, I found the California state tax law and it says the following:

“Sales tax applies to food products sold in a form suitable for consumption on the seller's premises regardless of whether the food product is sold “to go”, provided over 80 percent of the seller's gross receipts are from the sale of food products, and over 80 percent of the seller's retail sales of food products are sales subject to tax as one of the following: (1) sales of meals by the seller, (2) sales of food consumed at facilities provided by seller, 3) sales of food by a “drive in”, or (4) sales of hot prepared food products. Whether or not the 80-80 test is met, sales tax applies to the above four enumerated types of sales. (Revenue and Taxation Code Section 6359(d).) Food products include milk products (ice cream or yogurt) and all fruit and vegetable juices. (Rev. & Tax. Code § 6359(b)(2), (3).)” If the business does not meet the 80/80 rule, cold food products sold on a “take-out” or “to go” order should not be taxed.

Based on the wording, the "to go vs. dine in question" is irrelevant if the fro-yo shop derives 80% of sales from meals, food consumed on the premises or sold by a drive in or from hot, prepared foods. They need to tax you for fro-yo if they meet the 80/80 rule. If the fro-yo shop only sells cold dessert type items, juices and smoothies, they should charge you tax if 80% or more of people eat their fro-yo on the premises. Otherwise, fro-yo should not be taxed. However, it’s hard to tell whether 80% of gross receipts come from sales that are consumed on the premises – does the operator actually keep track of who dines in vs. takes it to go?

You know you love me. X0 X0, fro-yo girl.


William said...

Thanks for the post, this is very insightful for a potential future store owner. Now I know why Yogurtland ask me each time dine in or dine out.

BTW you know any stores in or around S.F. looking for more staff? Looking to mentor under owner willing to take an apprentice in. SFSU undergrad, B.S. in Finance, willing to work for 3 months no pay.

Lolia S said...

Hi William,

I don't know of any stores of hand, but I haven't looked for those types of opportunities. Maybe you can get the info you need just by talking to someone who works in or worked for a fro-yo shop? Or e-mail me and I can post something for you - it might catch the eye of a fro-yo shop owner?