If I sell food items, are they tax-exempt?

You hear that groceries can be tax-exempt, but you are not sure if your baked goods or preserves qualify. It is hard to keep up with the rules.

Taxability of food items varies widely; some states exempt certain grocery items while taxing “prepared foods” or “confections.” Additionally, when vendors choose to include sales tax in their listed prices (tax-inclusive pricing), they typically need to “back out” the tax amount to report the correct gross sales and tax due. This calculation typically needs to align with the exact local tax rate. Vendors may want to consult their state's tax charts to ensure they are applying the appropriate exemptions and formulas.

Identify your product type (shelf-stable, prepared, hot, or beverage) and verify the applicable tax treatment. Set your POS to charge tax where required, and keep a note of the guidance you used. When in doubt, ask the tax agency for written clarification.