Revenue Administrative Bulletin 2024-13

Note: A taxpayer may rely on this Revenue Administrative Bulletin (RAB) until it is revoked by Treasury or until a law on which this RAB is based is altered by legislation or by binding judicial precedent. See MCL 205.6a and RAB 2016-20.

RAB 2024-13. This Revenue Administrative Bulletin explains the sales- and use-tax treatment of food and prepared food. This RAB updates and replaces RAB 2022-4. This update is based on Public Acts 141 and 142 of 2023.

The Michigan Constitution of 1963, art. IX, § 8, prohibits a tax on “the sale or use of food for human consumption.” The General Sales Tax Act (GSTA), MCL 205.51 et seq., and the Use Tax Act (UTA), MCL 205.91 et seq., accordingly exempt “food and food ingredients” from the acts’ taxes on use, storage, consumption, and retail sale of tangible personal property. But the constitutional prohibition, by its own terms, doesn’t reach “prepared food intended for immediate consumption,” which may be subject to tax as “defined by law.” The GSTA and UTA thus define the terms “prepared food intended for immediate consumption” and “prepared food” and make such food subject to tax.

PAs 141 and 142 change the tax treatment of “prepared food” by changing definitions in, respectively, the UTA, MCL 205.94d, and the GSTA, MCL 205.54g, which are substantively identical. To simplify statutory references in this RAB, parts of those statutory sections will be identified only by subsection, e.g., “subsection (3)(e)(ii)” rather than “MCL 205.54g(3)(e)(ii) and MCL 205.94d(3)(e)(ii).”

1. What is food?

Under subsection (3)(c), the definition of “food and food ingredients” is unchanged by PAs 141 and 142. That term means “substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value.” The definition excludes alcoholic beverages, defined as “a beverage suitable for human consumption that contains 1/2 of 1% or more of alcohol by volume.” MCL 205.51a(a); MCL 205.92b(a). It also excludes tobacco, defined as “cigarettes, cigars, chewing or pipe tobacco, or any other item that contains tobacco.” MCL 205.51a(s); MCL 205.92b(r). See also Rule 91 of the Specific Sales and Use Tax Rules, Mich Admin Code, R 205.141(3) (stating that “marihuana, in any form,” is not food).

Some items meet that definition of food but can be used for things other than ingestion, chewing, or consumption by humans. Ice, for example, can be consumed in cubed or crushed form by humans, or it can be used in block form to keep other items cool. Ice used for the latter purpose is not food and so it is subject to tax. Treasury presumes that ice purchased in crushed or cube form is for human consumption. Treasury also presumes that ice purchased in block form is not for human consumption. The seller may overcome the latter presumption by producing specific information demonstrating that the ice is intended for use as food.

2. “Prepared food”

As noted above, the constitutional exemption for food excludes “prepared food intended for immediate consumption as defined by law.” Under subsection (3)(h), the term “prepared food intended for immediate consumption” means the same thing as “prepared food.” Subsection (3)(f) defines “prepared food” in three parts:

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

A food item meeting any one of those three parts is “prepared food” (subject to exclusions discussed below, in section 3 of this RAB). Each part is discussed in turn below.

2.1 “Food sold in a heated state or that is heated by the seller”

Under subsection (3)(f)(i), “food sold in a heated state or that is heated by the seller” is “prepared food.” Food is in a “heated state” if the food’s temperature is higher than room temperature. Food is “heated by the seller” if the seller heats the food and the food is still in a heated state when it is purchased. The examples in this section assume that no eating utensil was provided by the seller, a topic discussed below, in section 2.3 of this RAB.

Example 1. A grocery store sells soup, whose temperature is maintained at 150 degrees Fahrenheit. The soup is “in a heated state” and “heated by the seller”; therefore, the soup is subject to tax as “prepared food.”

Food is no longer in a “heated state” or “heated by the seller” if the food’s temperature falls to or below room temperature.

Example 2. A grocery store sells soup that it did not make, from a heated pot. After lunchtime, unsold soup is dispensed into containers and placed in a refrigerated cabinet for sale, without an eating utensil. The soup no longer is “in a heated state” or “heated by the seller.” The soup is not subject to tax as “prepared food.”

Food is not “sold in a heated state” if the purchaser heats it after purchasing it.

Example 3. A grocery store sells to a purchaser a container of soup that it did not make, without an eating utensil. The store provides a microwave for purchasers’ use. The purchaser uses the microwave to heat the soup. The soup was not “sold in a heated state” or “heated by the seller.” The soup is not subject to tax as “prepared food.”

2.2 “Two or more food ingredients mixed or combined by the seller for sale as a single item”

Under subsection (3)(f)(ii), “two or more food ingredients mixed or combined by the seller for sale as a single item” is “prepared food.” The examples in this section assume that no eating utensil was provided by the seller, a topic discussed below, in section 2.3 of this RAB.

Example 4. A grocery store makes soup from multiple food ingredients and sells it cold in containers. The soup is “two or more food ingredients mixed or combined by the seller for sale as a single item”; therefore, the soup is subject to tax as “prepared food.”

Example 5. A grocery store sells unheated soup consisting of multiple ingredients mixed or combined by a third party. The soup’s ingredients were not mixed or combined “by the seller.” The soup is not subject to tax as “prepared food.”

The compound term “mixed or combined” describes a process whereby food ingredients are put together and formed into a new food item. In some new food items, like soup or sauce, the food ingredients may lose individual character; in others, like a sandwich, the food ingredients may retain individual character. The important point is that the ingredients have been “mixed or combined” to form a new food item.

Example 6. A grocery store makes a marinara sauce by heating food ingredients in a pot. After the sauce cools, the store sells the sauce in containers. The ingredients are “mixed or combined ... for sale as a single item”; therefore, the sauce is subject to tax as “prepared food.”

Example 7. A grocery store makes a sandwich from bread, meat, cheese, and other ingredients. The ingredients are “mixed or combined ... for sale as a single item”; therefore, the sandwich is subject to tax as “prepared food.”

Ingredients that have been merely packaged together by the seller have not been “mixed or combined” by the seller. (As noted below, in section 3.1 of this RAB, “prepared food” also excludes food that has merely been “repackaged.”)

Example 8. A grocery store makes a deli tray by neatly placing food ingredients, slices of honey ham and provolone cheese, on a platter. The store sells the deli tray from a refrigerator case, as a single item. The food ingredients are not mixed or combined for sale as a single item. The deli tray is not subject to tax as “prepared food.”

Example 9. A grocery store makes a veggie tray by neatly placing food ingredients, carrot sticks and broccoli florets, on a platter. The store sells the veggie tray from a refrigerator case, as a single item. The food ingredients are not mixed or combined for sale as a single item. The veggie tray is not subject to tax as “prepared food.”

Example 10. A grocery store makes a veggie tray by neatly placing food ingredients, carrot sticks and broccoli florets, on a platter that has a central well containing a sealed cup of ranch dressing that the grocery store did not make. The store sells the veggie tray from a refrigerator case, as a single item. The food ingredients are not mixed or combined for sale as a single item. The deli tray is not subject to tax as “prepared food.”

Example 11. A grocery store makes a veggie tray by neatly placing food ingredients, carrot sticks and broccoli florets, on a platter that has a central well containing ranch dressing made by the store from buttermilk, herbs, and other food ingredients. The store sells the veggie tray from a refrigerator case, as a single item. The deli tray is subject to tax as “prepared food” (because the ranch dressing is mixed or combined by the store).

2.3 “Food sold with eating utensils provided by the seller”

Subsection (3)(f)(iii) uses the term “food sold with eating utensils provided by the seller,” a term not statutorily defined until PAs 141 and 142. For many years, a Treasury rule, Rule 86 of the Specific Sales and Use Tax Rules, Mich Admin Code, R 205.136(5), defined both “eating utensil” and “provided by the seller.” But the relevant part of that rule, Rule 86(5)(b), was struck down in Emagine Entertainment v Treasury, 334 Mich App 658 (2020), which concluded that Treasury lacked statutory authorization for its rule. Effective February 13, 2024, PAs 141 and 142 reinstated that rule’s approach to defining “food sold with eating utensils provided by the seller.”

For tax periods overlapping the period November 19, 2020, to February 13, 2024, Emagine controls the determination of whether food is sold with eating utensils provided by the seller. For more information about the application of Emagine, see the prior RAB on food for human consumption, RAB 2022-4. After February 13, 2024, the standard set forth below controls whether food is sold with eating utensils provided by the seller.

2.3.1 “Prepared food sales percentage”

What constitutes an eating utensil “provided by a seller” depends on a ratio called the “prepared food sales percentage” and, in particular, whether a seller’s “prepared food sales percentage” is “75% or less” or “greater than 75%.” The different standards that apply, depending on the “prepared food sales percentage,” are discussed in more detail below, in section 2.3.3 of this RAB. The calculation of the “prepared food sales percentage” is addressed here.

Subsection (3)(i) explains how and when a seller calculates the “prepared food sales percentage.” Under subsection (3)(i)(i), that percentage is “determined by dividing the numerator described in [subsection (3)(i)(i)(A)] by the denominator described in [subsection (3)(i)(i)(B)].” The numerator, under subsection (3)(i)(i)(A), consists of a seller’s annual sales of “prepared food described in [subsections (3)(f)(i) and (ii), concerning food that is heated, mixed, or combined]” and “food sold when plates, bowls, glasses, or cups are necessary to receive the food.” Note that the numerator does not fully incorporate food described in subsection (3)(f)(iii) (i.e., “food sold with eating utensils provided by the seller”), but only partly incorporates such food by including “food sold when plates, bowls, glasses, or cups are necessary to receive the food.”

Example 12. During the previous tax year, a grocery store sold a variety of food items that are not prepared food as well as hot soup, sandwiches made by the store, and garden salads assembled by purchasers in bowls made available by the store. The store also sold prepackaged ice-cream cones and sandwiches, which the store’s employees handed to purchasers with napkins, a type of utensil not necessary to receive the food. The numerator of the “prepared food sales percentage” will include sales of hot soup, sandwiches, and garden salads; the numerator will exclude sales of prepackaged ice-cream cones and sandwiches.

The numerator expressly excludes sales of “food described in [subsection (3)(g), discussed below, in section 3 of this RAB]” and “alcoholic beverages.” The numerator is divided by the denominator—defined under subsection (3)(i)(i)(B) as “the seller’s total annual sales of all food and food ingredients and prepared food, excluding alcoholic beverages,”—the resulting ratio or percentage reflects sales attributable to prepared food, i.e., a “prepared food sales percentage.” To illustrate, businesses like restaurants and concession stands will have a higher percentage than businesses like grocery stores.

Example 13. During the previous tax year, a restaurant’s sales of all food, as described in the statutory denominator, totaled $800,000. During the same period, the restaurant’s sales of food described in the statutory numerator was $760,000. The restaurant’s “prepared food sales percentage” is $760,000 divided by $800,000, expressed as a percent, i.e., 95%.

Example 14. During the previous tax year, a grocery store’s sales of all food, as described in the statutory denominator, totaled $800,000. During the same period, the store’s sales of food described in the statutory numerator was $40,000. The store’s “prepared food sales percentage” is $40,000 divided by $800,000, expressed as a percent, i.e., 5%.

Subsection (3)(i)(ii) requires the “prepared food sales percentage” to be calculated “for each tax year or business fiscal year, based on the seller’s sales data from the prior tax year or business fiscal year.” The calculation must take place “as soon as possible after accounting records are available, but not later than 90 days after the beginning of the seller’s tax year or business fiscal year.” A seller has only one “prepared food sales percentage,” even if it has multiple locations in Michigan.

Under subsection (3)(i)(ii), a seller lacking a previous year of sales for the statutory calculation must “make a good-faith estimate” of its percentage. After three months of business, the seller must prospectively adjust that estimate “if actual prepared food sales percentages materially affect the 75% threshold”; in other words, the seller must adjust its good-faith estimate if such an adjustment will cause the percentage to cross the 75% threshold. The seller must rely on the adjusted good-faith estimate for the rest of “its first year in business.”

Example 15. A new grocery store estimates that its “prepared food sales percentage” is 10%. After three months, the actual percentage is 18%. The store does not need to adjust its good-faith estimate.

Example 16. A new convenience store estimates that its “prepared food sales percentage” is 70%. After three months, the actual percentage is 82%. Because the actual percentage, in reference to the estimated percentage, crosses the 75% threshold, the store needs to adjust its good-faith estimate to 82% for the rest of its first year in business.

2.3.2 “Eating utensils”

Subsection (3)(e) defines the term “food sold with eating utensils provided by the seller,” but it does not specifically define “eating utensils.” Instead, subsection (3)(f)(iii) presents a list of example utensils: “knives, forks, spoons, glasses, cups, napkins, straws, or plates.” The listed examples are consistent with a common understanding of “eating utensil” as a tool intended to facilitate the eating of food. Such tools include not only those used to deliver food to the mouth (forks, spoons, glasses, cups, straws), but also items closely associated with eating (knives, napkins, plates). A similar tool is an “eating utensil” even if it is not listed in subsection (3)(f)(iii).

Example 17. A dairy store sells ice cream in a bowl. The bowl is an “eating utensil.”

Subsection (3)(f)(iii) also excludes from “eating utensil” “a container or packaging used to transport the food.”

Example 18. A grocery store sells preselected food items in a holiday-themed basket. The basket is not an “eating utensil.”

Example 19. A grocery store sells bulk dried beans. Next to the beans are stacks of containers and lids, which purchasers may use to receive and transport the beans. Those containers and lids are not “eating utensils.”

Also excluded is any packaging used to prepare the food for transport, like a sheet of wax paper used by an employee to avoid touching a food item with bare hands.

Example 20. A grocery store sells fresh croissants. The store’s employee uses a small sheet of wax paper to select the croissant for a purchaser. The employee puts both the croissant and the wax paper into a bag. Neither the bag nor the small sheet of waxed paper is an “eating utensil.”

2.3.3 “Provided by the seller”

The new statutory definition of “food sold with eating utensils provided by the seller” is organized around three different ways for a seller to provide a utensil:

1. seller provides the utensil by placing it in a package with food item
2. seller provides the utensil by giving or handing it to the purchaser
3. seller provides the utensil by making it available

The three ways of providing utensils apply in some form to all sellers, but the second and third ways have important variations that depend on whether the seller’s “prepared food sales percentage” is greater than 75%, as explained below.

2.3.3.1 “Provided by the seller” by placing utensil in package with food item

Under subsection (3)(e)(iii), when a seller packages a utensil with a food item, the utensil has been “provided by the seller.” (As indicated above, this way of providing a utensil to a purchaser does not depend on the seller’s “prepared food sales percentage.”)

Example 21. A grocery store sells salads prepared and packaged by a third party. The store adds a plastic fork to each salad. The fork has been “provided by the seller” because the store added it to the food item.

When a third party adds a utensil to a food item, it will be attributable to the seller unless the third party has a NAICS classification code of a manufacturer, subsector 311, which indicates a food-production business.

Example 22. A grocery store sells salads prepared and packaged by a third party that doesn’t have a NAICS classification code or has one other than manufacturer, subsector 311. In the packaging is a utensil, a plastic fork. The fork is considered to have been provided by the store.

Example 23. A grocery store sells ice-cream cups prepared and packaged by a third party that has a NAICS classification code of manufacturer, subsector 311. In the packaging is a utensil, a small wooden spoon. The spoon is not considered to have been provided by the store.

2.3.3.2 “Provided by the seller” for sellers with a “prepared food sales percentage of 75% or less”

Subsection (3)(e)(ii) governs the meaning of “eating utensils provided by the seller” where the seller has “a prepared food sales percentage of 75% or less.” For such a seller, an eating utensil is “provided by the seller” in two circumstances, described immediately below.

First, eating utensils are provided by such a seller if “the seller’s business practice is to give or hand eating utensils to purchasers.”

Example 24. A grocery store whose “prepared food sales percentage” is 75% or less sells salads it did not make. The store’s business practice is to give every salad purchaser a plastic fork. The salads will be considered to be “sold with eating utensils provided by the seller.”

One practical effect of a standard based on a “seller’s business practice” is that food items can become prepared food even if the seller does not, in fact, give or hand a utensil to a purchaser (that is, even if the seller does not comply with its business practice). Thus, transactions that seem similar can be subject to different tax treatment.

Second, eating utensils are provided by such a seller where they meet two criteria: (1) the utensils are “made available to purchasers” and (2) the utensils are “necessary for the purchaser to receive the food, such as bowls and cups.”

Example 25. A grocery store whose “prepared food sales percentage” is 75% or less has a salad bar. At one end of the bar is a table bearing a stack of plates (i.e., utensils necessary to receive the food). The plates are “provided by the seller.”

This standard does not apply where utensils are made available to purchasers but not necessary for the purchaser to receive the food.

Example 26. A grocery store whose “prepared food sales percentage” is 75% or less sells prepackaged bags of potato chips. The store has a napkin dispenser at the point of sale. The napkins are “eating utensils,” but they are not “provided by the seller.”

Example 27. A grocery store whose “prepared food sales percentage” is 75% or less has a salad bar. At one end of the bar is a table bearing a napkin dispenser. The napkins are not “provided by the seller.”

Example 28. A grocery store whose “prepared food sales percentage” is 75% or less has a salad bar. At one end of the bar is a table bearing a stack of plates and a fork dispenser. The plates are “provided by the seller”; the forks are not “provided by the seller.”

One practical effect of a “makes available” standard is that food items can become prepared food even if the purchaser does not, in fact, take or use a utensil that has been made available. Thus, transactions that seem similar can be subject to different tax treatment.

2.3.3.3 “Provided by the seller” for sellers with a “prepared food sales percentage of greater than 75%”

Subsection (3)(e)(i) governs the meaning of “eating utensils provided by the seller” where the seller has “a prepared food sales percentage of greater than 75%.” For such a seller, an eating utensil is “provided by the seller” in two circumstances, described immediately below.

First, eating utensils are provided by such a seller if “the seller makes eating utensils available to purchasers.” Unlike the “makes available to purchasers” standard applicable to a seller whose “prepared food sales percentage” is 75% or less (described above), this “makes available” standard does not require the utensils to be “necessary for the purchaser to receive the food.” In other words, it applies both to utensils that are “necessary” and to those that are not. (As noted above, under a “makes available standard,” food items can become prepared food even if the purchaser does not, in fact, take or use a utensil.)

Example 29. A concession stand whose “prepared food sales percentage” is greater than 75% sells prepackaged bags of potato chips. The stand has a napkin dispenser at the point of sale. The napkins are “made available to purchasers” and thus “provided by the seller.”

Example 30. A restaurant whose “prepared food sales percentage” is greater than 75% has a salad bar. At one end of the bar is a table bearing a stack of plates. The plates are “made available to purchasers” and thus “provided by the seller.”

Example 31. A restaurant whose “prepared food sales percentage” is greater than 75% has a salad bar. At one end of the bar is a table bearing a stack of plates and a fork dispenser. Both the plates and forks are “made available to purchasers” and thus “provided by the seller.”

Example 32. A restaurant whose “prepared food sales percentage” is greater than 75% has a salad bar. At one end of the bar is a table bearing a napkin dispenser. The napkins are “made available to purchasers” and thus “provided by the seller.”

The second circumstance is an important carveout from the first and applies to bottled water, candy, and soft drinks. For those items, eating utensils are provided by such a seller only if “the seller gives or hands the eating utensils to purchasers or makes plates, bowls, glasses, or cups that are necessary for the purchaser to receive the food available to purchasers.” In other words, those items do not become taxable merely because utensils are made available, unless those utensils are plates, bowls, glasses, or cups that are necessary for the purchaser to receive the food.

Under subsection (3)(a), “bottled water” is water “placed in a safety sealed container or package for human consumption, including water that is delivered to the buyer in a reusable container that is not sold with the water.” The water must be calorie-free, and additives are limited to antimicrobial agents, fluoride, carbonation, vitamins, minerals, electrolytes, oxygen, preservatives, and only those flavors, extracts, or essences derived from a spice or fruit.

Example 33. A concession stand whose “prepared food sales percentage” is greater than 75% sells bottled water. The stand has a napkin dispenser at the point of sale, but the stand’s employees do not give or hand napkins to purchasers of bottled water. The napkins are utensils, but they are not “provided by the seller” for the purposes of a sale of bottled water; therefore, the bottled water is not subject to tax as “prepared food.”

Example 34. A concession stand whose “prepared food sales percentage” is greater than 75% sells bottled water. The stand’s employees give or hand napkins to purchasers of bottled water. The napkins are “provided by the seller”; therefore, the bottled water is subject to tax as “prepared food.”

Under subsection (3)(b), “candy” is a food item that is “a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruit, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces.” The term “candy” excludes “any preparation containing flour.” That definition is broad enough to include candy sold prepackaged or in bulk.

Example 35. A concession stand whose “prepared food sales percentage” is greater than 75% sells candy. The stand has a napkin dispenser at the point of sale, but the stand’s employees do not give or hand napkins to purchasers of candy. The napkins are utensils, but they are not “provided by the seller” for the purposes of a sale of candy; therefore, the candy is not subject to tax as “prepared food.”

Example 36. A concession stand whose “prepared food sales percentage” is greater than 75% sells candy. The stand’s employees give or hand napkins to purchasers of candy. The napkins are “provided by the seller”; therefore, the candy is subject to tax as “prepared food.”

Under subsection (3)(j), “soft drinks” are “nonalcoholic beverages that contain natural or artificial sweeteners.” Excluded from soft drinks are “beverages that contain milk or milk products, soy, rice, or similar milk substitutes, or greater than 50% of vegetable or fruit juice by volume.”

Example 37. A concession stand whose “prepared food sales percentage” is greater than 75% sells fountain soft drinks. At the point of sale, the stand has a dispenser of plastic cups, which are necessary for purchasers to receive the fountain soft drinks. The cups are utensils, and for the purposes of a sale of a fountain soft drink, the cups are “provided by the seller”; therefore, the fountain soft drinks are subject to tax as “prepared food.”

Example 38. A concession stand whose “prepared food sales percentage” is greater than 75% sells bottled soft drinks and fountain soft drinks. At the point of sale, the stand has a dispenser of plastic cups, which are necessary for purchasers to receive the fountain soft drinks. For the purposes of sales of bottled soft drinks, the cups are not “provided by the seller”; therefore, the bottled soft drinks are not subject to tax as “prepared food.”

Certain food items with multiple servings also are carved out from the “makes available” standard for sellers with a “prepared food sales percentage” of greater than 75%. Under subsection (3)(e)(i), for a utensil to be provided by the seller with a food item that has “4 or more servings packaged as 1 food item sold for a single price,” “the seller must give or hand the eating utensil to the purchaser.” An item’s serving size is determined according to information on its label; if no serving size can be determined, the seller may determine the reasonable number of servings in an item.

Example 39. A concession stand whose “prepared food sales percentage” is greater than 75% sells potato chips, prepackaged in bags bearing the message “4 servings.” The stand has a napkin dispenser at the point of sale, but the stand’s employees do not give or hand napkins to purchasers of 4-serving bags of potato chips. The napkins are “eating utensils,” but for the purposes of sales of 4-serving bags of potato chips, the napkins are not “provided by the seller”; therefore, the 4-serving bags of potato chips are not subject to tax as “prepared food.”

Example 40. A concession stand whose “prepared food sales percentage” is greater than 75% sells potato chips, prepackaged in bags bearing the message “4 servings.” The stand’s employees give or hand napkins to purchasers of 4-serving bags of potato chips. The napkins are “provided by the seller”; therefore, the 4-serving bags of potato chips are subject to tax as “prepared food.”

3. Exclusions from “prepared food”

Subsection (3)(g) excludes certain categories of food items from “prepared food.”

3.1 “Food that is only cut, repackaged, or pasteurized by the seller”

Under subsection (3)(g)(i), “prepared food” does not include “food that is only cut, repackaged, or pasteurized by the seller.”

Example 41. A grocery store cuts celery into sticks of uniform length and sells the sticks of celery in packages of 10 sticks, refrigerated and without an eating utensil. The package of cut celery is not subject to tax as “prepared food.”

The statute’s use of the word “only” suggests that if the seller processes food items beyond cutting, repackaging, or pasteurizing, then the food items are “prepared food.” Thus, food items that are cut, repackaged, or pasteurized and then heated, mixed, or combined by the seller are “prepared food” since the food has been processed beyond cutting, repackaging, or pasteurizing.

Providing a utensil, however, does not make a food item in this category “prepared food.”

Example 42. A grocery store cuts celery into sticks of uniform length and sells the sticks of celery in packages of 10 sticks, ready to eat. The store’s business practice is to give a napkin with the purchase of an item that could be easily eaten on the go. The napkin does not make the package of cut celery subject to tax as “prepared food.”

3.2 “Raw eggs, fish, meat, poultry, and foods containing those raw items”

Under subsection (3)(g)(ii), “prepared food” excludes “raw eggs, fish, meat, poultry, and foods containing those raw items,” but that exclusion is limited to a raw item or a food containing the raw item “requiring cooking by the consumer … to prevent foodborne illness.”

Example 43. A grocery store sells uncooked hamburger patties it makes from raw ground beef. The hamburger patties are not subject to tax as “prepared food.”

Note that food items containing raw animal products are not prepared food. While mixing or combining food items generally makes them “prepared food” under subsection (3)(f)(ii), if one of those foods is a listed raw animal product, the resulting mixture or combination is not considered “prepared food,” unless, as noted above, it does not require cooking to prevent foodborne illness.

Example 44. A grocery store prepares and sells uncooked hamburger patties from a mixture of raw ground beef and seasoning. The patties are not subject to tax as “prepared food.”

Example 45. A grocery store prepares and sells ready-to-eat sushi from a combination of raw fish, rice, and seaweed. The sushi is subject to tax as “prepared food.”

Providing a utensil does not make a food item in this category “prepared food.”

Example 46. A grocery store prepares and sells uncooked hamburger patties it makes from raw ground beef. The store’s business practice is to give napkins to purchasers. The napkins do not make uncooked hamburger patties subject to tax as “prepared food.”

3.3 “Food sold in an unheated state by weight or volume as a single item”

Under subsection (3)(g)(iii), “prepared food” excludes “food sold in an unheated state by weight or volume as a single item, without eating utensils.” The term “food sold in an unheated state by weight or volume as a single item” is defined in subsection (3)(d) as “food sold in an unheated state and the sales price of which is determined by multiplying its per unit price by its weight or volume and the sales price of which varies based on its weight or volume.” The terms “volume” and “weight” are also defined. Under subsection (3)(k), “volume” is “a 3-dimensional measure, expressed in units such as pints, quarts, cubic centimeters, or liters.” Under subsection (3)(l), “weight” is “a measure of heaviness, expressed in units such as pounds or grams.” For an item to be sold “by weight or volume as a single item,” the sales price must vary directly with the weight or volume of the unheated food.

Example 47. A grocery store sells premade granola, without utensils, in a container bearing a price determined by multiplying the weight in ounces of the granola in the container by a per-ounce price. The granola is sold “by weight or volume as a single item.”

Example 48. A grocery store sells peanuts, without utensils, in a container bearing a price determined by multiplying the weight in ounces of the peanuts in the container by a per-ounce price. The peanuts are sold “by weight or volume as a single item.”

Note that the exclusion here applies to food sold “as a single item,” implying that the food could be formed from mixing or combining multiple ingredients. Thus, food sold by weight or volume is not “prepared food” even if it is a mixture or combination under subsection (3)(f)(ii).

Example 49. A grocery store mixes food ingredients to make granola and sells it, without eating utensils, in a container bearing a price determined by multiplying the weight in ounces of the granola in the container by a per-ounce price. The granola is sold “by weight or volume as a single item”; even though it is a mixture or combination, it is not subject to tax as “prepared food.”

Example 50. A grocery store mixes food ingredients to make potato salad and sells it, refrigerated and without eating utensils, in a container bearing a price determined by multiplying the weight in ounces of the potato salad in the container by its per-ounce price. The potato salad is sold “by weight or volume as a single item”; even though it is a mixture or combination, it is not subject to tax as “prepared food.”

Note also that the exclusion here is limited to food that is “unheated” and sold “without eating utensils.” If the food is heated or if eating utensils are “provided by the seller,” as described in detail above, then the food is “prepared food.”

Example 51. A grocery store sells popcorn by weight from a machine that keeps the popcorn warm. Because it is heated, the popcorn is subject to tax as “prepared food.”

Example 52. A grocery store sells cooled popcorn by weight. The store’s business practice is to give or hand a napkin to someone buying popcorn. Because an eating utensil was “provided by the seller,” the popcorn is subject to tax as “prepared food.”

An item is not sold “by weight or volume” merely because a weight or volume measure is written on the product or its packaging.

Example 53. A grocery store sells prepackaged potato chips in bags that say “Net Weight 13 Ounces.” The bags are priced at $6 per bag, with no indication that the price varies directly with the weight or volume of the chips. The bags of potato chips are not sold “by weight or volume.”

3.4 “Bakery items”

Subsection (3)(g)(iv) excludes from “prepared food” “bakery items ... sold without eating utensils.” The term “bakery items” is not defined, but the subsection lists the following examples: bread, rolls, buns, biscuits, bagels, croissants, pastries, doughnuts, Danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas. The exclusion applies only when bakery items are “sold without eating utensils.”

Example 54. A grocery store sells doughnuts without eating utensils. The doughnuts are “bakery items.” The doughnuts are not subject to tax as “prepared food.”

Under subsection (3)(f)(iii), as discussed in section 2.3.2 of this RAB, utensils do not include “a container or packaging used to transport the food” or packaging used to prepare food for transport, like a sheet of wax paper used by an employee to avoid touching a food item with bare hands.

Example 55. A grocery store sells fresh croissants. The store’s employee uses a small sheet of wax paper to select the croissant for a purchaser. The employee puts both the croissant and the wax paper into a bag. Neither the bag nor the small sheet of waxed paper is an “eating utensil.” Because the seller has not provided an eating utensil, the croissant is not subject to tax as “prepared food.”

4. Vending machines

Subsection (2), which is not altered by PAs 141 and 142, governs the tax treatment of food sold through a vending machine. The subsection exempts milk, nonalcoholic beverages in a sealed container, and fresh fruit, regardless of temperature. Any other food item is subject to tax if it is “prepared food” (as discussed above) or if its temperature has been artificially put above 75 or below 65 degrees Fahrenheit (i.e., outside a typical “room temperature” range) “before sale.”

Example 56. A vending machine sells food items that are “prepared food” according to the discussion above, for example, coffee that is brewed after sale and “sold in a heated state.” The food items are subject to tax.

Example 57. A vending machine sells bakery items without utensils. Regardless of their temperature, the bakery items are not subject to tax.

Example 58. A vending machine sells cartons of milk. Regardless of their temperature, the cartons of milk are not subject to tax.

Example 59. A vending machine sells soft drinks in sealed containers. Regardless of their temperature, the soft drinks are not subject to tax.

Example 60. A vending machine sells potato chips whose temperature has not been artificially raised or lowered before sale. The chips are not subject to tax.

Example 61. A vending machine sells premade sandwiches whose temperature has been artificially lowered below 65 degrees Fahrenheit before sale. The sandwiches are subject to tax.

Where one vending machine sells both exempt items and items subject to tax, the tax due is calculated according to the taxpayer’s choice between two methods. Under the first method, subsection (2)(a), the tax base is the “actual gross proceeds from sales at retail,” that is, proceeds from taxable items, which include “prepared food,” as described in this RAB, or foods (besides milk, nonalcoholic beverages in a sealed container, and fresh fruit) artificially heated or cooled, as described above.

Example 62. A vending machine sells milk, carbonated beverages in sealed containers, fresh fruit, and premade sandwiches, all artificially cooled below 65 degrees Fahrenheit before sale. Under the method described in subsection (2)(a), the tax base includes the proceeds from the sale of the sandwiches, which are taxable, and excludes the proceeds from the other listed items (milk, carbonated beverages, and fresh fruit), which are exempt.

Example 63. A vending machine sells a variety of potato chips, corn chips, chocolate bars, and candy, sold at room temperature. Under the method described in subsection (2)(a), the tax base excludes all listed items because they are all exempt as “food or food ingredients”; the tax base thus is zero.

Under the second method, subsection (2)(b), the tax base is “forty-five percent of proceeds from the sale of items subject to tax under this act or exempt from the tax levied under this act, other than from the sale of carbonated beverages,” that is, 45% of proceeds from all items (i.e., taxable items and exempt items) except carbonated beverages. Under this second method, the temperature of the items does not matter, and the tax base includes proceeds from milk and fresh fruit.

Example 64. A vending machine sells milk, carbonated beverages in sealed containers, fresh fruit, and premade sandwiches, all artificially cooled below 65 degrees Fahrenheit before sale. Under the method described in subsection (2)(b), the tax base is 45% of the proceeds from the sale of milk, fresh fruit, and sandwiches (i.e., all listed items except carbonated beverages).

Example 65. A vending machine sells a variety of potato chips, corn chips, chocolate bars, and candy, sold at room temperature. Under the method described in subsection (2)(b), the tax base is 45% of the proceeds from the sale of all listed items.

5. Other exemptions

Along with the exemption for “prepared food,” the statutes amended by PAs 141 and 142 contain food-related exemptions for the following items (which exemptions PAs 141 and 142 did not substantively alter):

• Under subsection (1)(b), the deposit on a returnable container for a beverage or the deposit on a carton or case that is used for returnable containers.
• Under subsection (1)(c), food and other items purchased under the federal Food Stamp Program, now called Supplemental Nutrition Assistance Program (SNAP).
• Under subsection (1)(c), meals eligible to be purchased under SNAP that are sold by a person exempt from the sales or use tax (e.g., a “meals on wheels” program).
• Under subsection (1)(d), fruit or vegetable seeds or plants purchased at a business authorized under SNAP (or at a business that can prove that it applied for and was denied authorization).
• Under subsection (1)(e), live animals purchased with the intent to slaughter them for human consumption.