Notice Regarding Changes to the Tax Treatment of “Prepared Food”

Issued: January 25, 2024

The Michigan Constitution of 1963, art. IX, § 8, prohibits a tax on “the sale or use of food for human consumption except in the case of prepared food intended for human consumption as defined by law.” That tax prohibition is implemented in the Use Tax Act, MCL 205.94d, and in the General Sales Tax Act, MCL 205.54g, which exempt “food and food ingredients,” but generally tax “prepared food.” Effective February 13, 2024, those acts are amended by Public Acts 141 and 142 of 2023, which define “prepared food” to include (among other things) food sold with eating utensils provided by the seller.

What does PAs 141 and 142 change for sellers?

The definition of “prepared food” introduced in PAs 141 and 142 includes “food sold with eating utensils provided by the seller.” For a seller whose “prepared food sales percentage” does not exceed 75%, the public acts do not change the general standard for what constitutes a utensil “provided by the seller.” Under that general standard, an eating utensil is “provided by the seller” only if the seller puts the utensil in a food item’s packaging, gives or hands a utensil to a purchaser, or makes available a utensil necessary for the purchaser to receive food.

A seller with a “prepared food sales percentage” over 75% is subject to the same general standard, stated above. Starting February 13, 2024, such a seller is also subject to a special standard, i.e., that a utensil is “provided by the seller” when a seller makes an eating utensil available. Treasury had previously enforced that special standard through Rule 86 of Treasury’s Specific Sales and Use Tax Rules, Mich Admin Code, R 205.136; but the Court of Appeals overturned the relevant part of Rule 86 in Emagine Entertainment v Department of Treasury, 334 Mich App 658 (2020). In enacting PAs 141 and 142, the Legislature has reinstated the pre-Emagine status quo, with some adjustments.

More on what is, and what isn’t, “prepared food”

PAs 141 and 142 amend MCL 205.94d and MCL 205.54g but leave many key parts of those statutes untouched. PAs 141 and 142 do not change the three categories of “prepared food”:

1. food sold in a heated state or that is heated by the seller
2. two or more food ingredients mixed or combined by the seller for sale as a single item
3. food sold with eating utensils provided by the seller

Whether food falls into one of the first two categories is straightforwardly based on whether the food is sold warm or hot or whether the seller made it by mixing or combining ingredients. For a food item to fall into the third category depends on the meaning of “food sold with eating utensils provided by the seller.” Though the acts don’t define “eating utensil,” they offer an illustrative list: “knives, forks, spoons, glasses, cups, napkins, straws, or plates, but not including a container or packaging used to transport the food.”

As noted above, PAs 141 and 142 partly codify parts of Treasury’s Rule 86, including when an eating utensil is “provided by the seller.” Under Rule 86, and starting on February 13, 2024, under PAs 141 and 142, a utensil is “provided by the seller” when one of the following criteria is met:

1. the seller or another person puts a utensil in a product’s packaging and that other person does not have the NAICS classification code of a manufacturer, subsector 311
2. the seller’s business practice is to give or hand utensils to purchasers
3. the seller makes available eating utensils necessary for the purchaser to receive the food

   That is, for any food seller, the seller has provided a utensil for a food item if the seller (1) puts the utensil in the item’s packaging, (2) gives or hands a utensil to the item’s purchaser, or (3) makes available a utensil necessary to receive the purchased item. For any food item, if the seller does one of those three things, the food item is “prepared food” and thus subject to tax. These three criteria form a general standard applicable to all food sellers.

   PAs 141 and 142 also create a fourth standard, a special standard that applies only to certain sellers:

4. the seller makes available eating utensils

Starting February 13, 2024, that special standard provides that a utensil is “provided by the seller” when the seller makes a utensil available to the purchaser of a food item. Unlike the three-part general standard above, which applies to all sellers, this special standard applies only to sellers whose “prepared food sales percentage” exceeds 75%. That percentage characterizes the proportion of food sales attributable to sales of “prepared food”; a higher percentage typifies businesses like restaurants and concession stands. How to calculate the percentage is detailed in PAs 141 and 142. 

Note that the fourth standard does not apply to bottled water, candy, bottled soft drinks, and certain food items with multiple servings. For those items, an eating utensil is “provided by the seller” only under the three-part general standard.

PAs 141 and 142 do not change the statutory exclusions from “prepared food”:

1. food that is only cut, repackaged, or pasteurized by the seller
2. raw eggs, fish, meat, poultry, and food containing those raw items
3. food sold in an unheated state by weight or volume as a single item
4. bakery items, including bread, rolls, buns, biscuits, bagels, croissants, pastries, doughnuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas, sold without eating utensils

Future guidance

Treasury will issue a new Revenue Administrative Bulletin, Sales and Use Tax — Food for Human Consumption, to replace RAB 2022-4.