​Effective October 1, 2009, the Wisconsin sales tax laws were changed, including the sales tax exemption for food and related definitions. As a result, the Wisconsin sales and use tax treatment of ice cream cakes and similar products changed.

Prior to October 1, 2009, sales of ice cream cakes were subject to Wisconsin sales or use tax only if sold for consumption on the retailer's premises. Sales of similar items, such as ice cream bars, were subject to Wisconsin sales or use tax as confections, regardless of where consumed. Beginning October 1, 2009, whether or not an ice cream cake or similar item is taxable depends on whether it meets the definition of "prepared food."

"Prepared food" includes two or more food ingredients mixed or combined by the retailer for sale as a single item, but not including:

• The retailer's sales of bakery items,
• Two or more food ingredients mixed or combined by the retailer for sale as a single item if the retailer's primary North American Industry Classification System code (NAICS code) is manufacturing under subsector 311 but not including bakeries and tortilla manufacturers under industry group number 3118,
• Two or more food ingredients mixed or combined by the retailer for sale as a single item and sold unheated by weight or volume,
• Items that are only sliced, repackaged, or pasteurized by the retailer, or
• Eggs, meat, fish, poultry or any food item containing them in raw form that requires cooking by the consumer.

Generally, if a person mixes ice cream and one or more other food items to form an ice cream cake or ice cream bar, the retail sale of the ice cream cake or bar is taxable as a sale of prepared food. If the ice cream cake or bar is prepared by someone other than the retailer, it is not taxable unless it meets one of the other prepared food definition categories (e.g., furnished with utensils).

Caution: There are additional categories of "prepared food" that are also taxable but are not addressed in this article. For more information, go to sec. Tax 11.51, Wis. Adm. Code (May 2010 Register).

The following examples illustrate the tax treatment of sale of ice cream cakes and ice cream bars by restaurants.

Example 1 – Restaurant A purchases various food ingredients (ice cream, fudge, and cookie bits) to make an ice cream cake. The ice cream cake is made by Restaurant A starting with a layer of ice cream, placing a layer of fudge and cookie bits on top of the ice cream, and then covering the layer of fudge and cookie bits with another layer of ice cream. Finally, the top of the ice cream cake may be decorated for a particular special occasion. The price of the cake sold will not vary based on weight or volume of the cake. The ice cream cake is "prepared food" and subject to Wisconsin sales or use tax since it is a combination or two or more ingredients mixed or combined by the retailer for sale as a single item.

Example 2 – Same as Example 1, except that the retailer does not make the ice cream cake. Instead, Restaurant A purchases the ice cream cake already made and decorated from its supplier and the ice cream cake contains four or more servings. Restaurant A sells the ice cream cake to its customer without physically giving or handing a napkin or other utensil to the customer. The ice cream cake is not "prepared food" and Restaurant A's sale of the ice cream cake is not subject to Wisconsin sales or use tax.

Example 3 – Same as Example 1, except that the retailer does not make the ice cream cake. Instead, Restaurant A purchases the ice cream cake already made and decorated from its supplier. Restaurant A sells a single serving of the ice cream cake to its customer. Napkins and other utensils are made available to customer for self-service. Restaurant A's sale of the single serving of ice cream cake is a sale of "prepared food" and is subject to Wisconsin sales or use tax.

Note: This presumes that the restaurant's sales of prepared food are more than 75% of its total sales of food and food ingredients, as computed in sec. Tax 11.51(4)(d)2., Wis. Adm. Code (May 2010 Register).

Example 4 – Same as Example 1, except that Restaurant A does not make the ice cream cake. However, after purchasing the ice cream cake from its supplier, Restaurant A decorates the ice cream cake according to instructions received from its customer. It adds designs and words made from frosting and edible gels. Since the retailer mixed or combined two or more foods or food ingredients (i.e., the ice cream cake and the frosting and edible gels) for sale as a single item, the ice cream cake sold by the retailer is "prepared food" and subject to Wisconsin sales or use tax.

Example 5 – Restaurant B purchases ice cream and chocolate coating from its supplier. Using this ice cream and chocolate, Restaurant B prepares chocolate covered ice cream bars which are sold to its customers. The chocolate covered ice cream bars are "prepared food" and subject to Wisconsin sales or use tax since they are a combination of two or more ingredients mixed or combined by the retailer for sale as a single item.

Example 6 – Same as Example 5, except that after making the ice cream bars, Restaurant B packages them into boxes of six. Restaurant B sells the boxes of ice cream bars for a single price. Restaurant B's sales of the ice cream bars packaged in boxes of six are "prepared food" and subject to Wisconsin sales or use tax since they are a combination of two or more ingredients mixed or combined by the retailer for sale as a single item. Since Restaurant B made the ice cream bars, it does not matter that the box contains four or more servings.

Example 7 – Restaurant B purchases ice cream bars already made from its supplier. Restaurant B sells the ice cream bars individually to its customers. Napkins and other utensils are made available to customer for self-service. These ice cream bars are "prepared food" and subject to Wisconsin sales or use tax.

Note: This presumes that the restaurant's sales of prepared food are more than 75% of its total sales of food and food ingredients, as computed in sec. Tax 11.51(4)(d)2., Wis. Adm. Code (May 2010 Register).

Example 8 – Same as Example 7, except that Restaurant B packages the ice cream bars into boxes of six. Restaurant B sells the boxes of ice cream bars for a single price. Restaurant B's customary practice is to not give or hand a napkin or other utensil to the customer with the boxes of ice cream bars. Restaurant B's sales of the ice cream bars packaged in boxes of six are not subject to Wisconsin sales or use tax because they are not "prepared food." Since they contain four or more servings packaged as one item and sold for a single price, they are not "prepared food."

Example 9 – Restaurant C purchases various food and food ingredients (eggs, flour, sugar, ice cream, fudge, cookie bits, etc.) to make cakes with an ice cream layer. Restaurant C makes a layer of cake using the eggs, flour, sugar, etc. Once the cake layers are baked and cooled, Restaurant C covers one of the cake layers with a layer of fudge and cookie bits. Restaurant C then places another cake layer over the fudge and cookie bits and covers the second cake layer with a layer of ice cream. Restaurant C decorates the top of the cake according to instructions provided by its customer. This cake is primarily a bakery item which is excluded from the definition of "prepared food" and not subject to Wisconsin sales or use tax.

Example 10 – Restaurant D purchases various food and food ingredients (eggs, flour, sugar, ice cream, fudge, cookie bits, etc.) to make a layered ice cream cake. Restaurant D makes a layer of cake using the eggs, flour, sugar, etc. Once the cake layer is baked and cooled, Restaurant D places the cake layer between two layers of ice cream. Restaurant D decorates the top of the cake according to instructions provided by its customer. This cake is "prepared food" and subject to Wisconsin sales or use tax since Restaurant D mixed or combined 2 or more ingredients to make the cake. The ice cream cake is not primarily a bakery item.

November 8, 2010