Cookies and Brownies Sold by Out-Of-State Baker Exempt in Iowa

Jan 25th, 2019

A ruling by the Iowa Department of Revenue recently addressed the taxability of cookies and brownies that were baked, sold, and shipped to Iowa customers from outside the state. Some of the orders included reusable tins that had significant value in relation to the total price paid.

Iowa generally exempts food, but taxes prepared food. Bakery items are excluded from the definition of "prepared food." The ruling determined that cookies and brownies prepared by a baker are exempt food products.

The ruling also found that bakery items sold with reusable containers were not subject to bundled transaction rules because the purchase of the containers was optional. Since bundled transaction rules did not apply, the ruling determined that the tins were taxable and the brownies were exempt when sold together.

Finally, the ruling addressed whether the seller had economic nexus with Iowa. There was insufficient evidence to make a determination, but the ruling noted that economic nexus is created with Iowa when a remote seller has gross revenue from the state equal to or in excess of $100,000 or 200 or more separate transactions in the current or preceding calendar year.