SF4863

Purpose

• The bill changes the definition of “prepared food” for Minnesota’s sales and use tax, clarifying which foods are taxed as prepared foods and which are not.

Main Provisions

• Amends Minnesota Statutes 2024 section 297A.61 subdivision 31 to redefine prepared food.
• Prepared food is defined as food that meets either of these conditions:
  • (1) The food is sold with eating utensils provided by the seller (including plates, knives, forks, spoons, glasses, cups, napkins, or straws).
  • (2) The food is sold in a heated state or heated by the seller, or two or more food ingredients are mixed or combined by the seller for sale as a single item.
• Exceptions (items not considered prepared food, even if they might fit the general conditions above):
  • (i) Bakery items, including but not limited to bread rolls, buns, biscuits, bagels, croissants, pastries, donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, tortillas, and similar items.
  • (ii) Ready-to-eat meat and seafood in an unheated state sold by weight.
  • (iii) Eggs, fish, meat, poultry, and foods containing these raw animal foods that require cooking by the consumer as recommended by the FDA Food Code (specifically referencing 21 CFR 401.11).
  • (iv) Food that is only sliced, repackaged, or pasteurized by the seller.
  • (v) Food sold by a seller whose primary NAICS classification is in manufacturing in sector 311, except subsector 3118.

What This Changes About Tax Treatment

• The definition clarifies which foods are taxed as “prepared food” versus foods that are considered groceries or non-prepared foods.
• Bakery items are explicitly exempt from being counted as prepared food for tax purposes, even if they might otherwise appear to fit the criteria.
• Certain raw or prepared items (e.g., unheated ready-to-eat meats by weight; raw animal foods requiring cooking per FDA guidance) are excluded from the prepared-food category.
• Foods produced by manufacturers in sector 311 (with the 3118 exception) have a defined treatment under the prepared-food rule.

Significant Changes to Existing Law

• Replaces or clarifies the prior interpretation of what counts as prepared food for sales tax.
• Tightens or specifies exemptions to reduce the scope of what is taxed as prepared food, particularly for bakery items, specific unheated ready-to-eat meats, raw animal foods requiring cooking, sliced/repackaged/pasteurized items, and certain manufacturing-sector foods.

Implications for Taxpayers and Businesses

• Restaurants, grocery stores, bakeries, and manufacturing-related food sellers may see changes in whether certain items are taxed as prepared foods.
• The exemptions could reduce the number of items taxed as prepared food in some categories (e.g., bakery items) and confirm non-taxable status for others (e.g., unheated ready-to-eat meats by weight, certain raw animal foods).

Practical Takeaways

• If you sell or buy bakery items, those items are not treated as prepared food for tax purposes under this bill.
• If you sell unheated ready-to-eat meat and seafood by weight, or foods containing raw animal ingredients that require cooking by the consumer, these are not considered prepared food.
• Items sliced, repackaged, or pasteurized by the seller are not considered prepared food.
• Food sold by manufacturers in sector 311 (except subsector 3118) is subject to the defined rules for prepared food.

Terminology for Clarity

• Prepared food
• Eating utensils
• Ready-to-eat
• Unheated state
• Mixed or combined ingredients
• Bakery items
• NAICS (North American Industry Classification System)
• Sector 311 (food manufacturing)
• Subsector 3118
• FDA Food Code, 21 CFR 401.11

Effects to Watch

• The bill’s changes may shift certain items between taxable and non-taxable categories, affecting receipts for retailers and purchases for consumers.

Relevant Terms - prepared food - eating utensils - heated state - mixed or combined - bakery items - ready-to-eat meat and seafood - unheated state - eggs - fish - meat - poultry - foods containing raw animal foods - slicing / repackaging / pasteurization by seller - NAICS - sector 311 - subsector 3118 - FDA Food Code - 21 CFR 401.11