Michigan Sales Tax on Catering Sales

Tax Question:  Do I need to collect Michigan Sales Tax on caterings?

Answer:  The simple answer is you do need to collect Michigan sales tax on the food sold.  But it can be more complicated if you are also hired to serve the food.

According to Michigan Sales Tax rules, you must charge Michigan sales tax on “Prepared Food.”

According to The General Sales Tax Act [MCL 205.54g]
(4) “Prepared food” means the following:
(a) Food sold in a heated state or that is heated by the seller.
(b) Two or more food ingredients mixed or combined by the seller for sale as a single item.
(c) Food sold with eating utensils provided by the seller, including knives, forks, spoons, glasses, cups, napkins, straws, or plates, but not including a container or packaging used to transport the food.

However, you do not charge Michigan sales tax on services.  If you are hired to provide the food and serve the food, then we recommend itemizing the billing internally.  For example, a client hires you to cater a party for 50 people.  You charge the client $15 per head for a total of $750.  You cost for food to cater the event is $250.  You markup the food sold by 5 to 15%.  On your books you would breakdown the billing as follows.

$275.00, Food Sales (250 * 10% markup = 25 then 250 + 25 = 275)
$16.50, Michigan sales tax (275 * 6% sales tax)
$458.50, Service Sales

$750.00, Total Sale

You may not show the client this breakdown.  This is all done internally.  By following this method, you charge sales tax on the cost of food plus a small markup.

Lastly, this method changes if you paid Michigan Sales Tax when purchasing the food.  For example, you purchase $250 worth of food for the party from a bulk distributor.  The total cost of the food purchase is $265 which included $15 of Michigan Sales Tax.  If this is the case then the breakdown would be as follows.

$290.00, Food Sales (250 * 10% markup = 25 then 250 + 15 tax paid with purchase +25 = 290)
$1.50, Michigan sales tax (10% markup or 25 * 6% sales tax)
$458.50, Service Sales

$750.00, Total Sale

In this case, you record the cost of Michigan Sales Tax for the 10% markup only.  This is because you already paid sales tax when purchasing the food.

Whichever method you use, it is important to record the sales correctly.  This will save you if you are audited by the State of Michigan.

IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.