Question

Melanie operates Mel’s Bakery in Foxboro, Massachusetts with retail stores in Connecticut, Maine, Massachusetts, New Hampshire, and Rhode Island. Mel’s also ships specialty breads nationwide upon request. Determine Mel’s sales tax collection responsibility and calculate the total sales tax liability for Massachusetts, Connecticut, Maine, New Hampshire, Rhode Island, and Texas using the following information:

a) The Massachusetts stores earn $500,000 in sales. Massachusetts’ sales tax rate is 5 percent; assume it exempts food items.

b) The Connecticut retail stores have $390,000 in sales ($300,000 from in-store sales and $90,000 for catering) and $10,000 in delivery charges for catering activities. Connecticut sales tax is 6 percent and excludes food products, but taxes prepared meals (catering). Connecticut also imposes sales tax on delivery charges on taxable sales.

c) Mel’s Maine retail store has $250,000 of sales ($200,000 for take-out and $50,000 of in-store sales). Maine has a 5 percent sales tax rate and a 7 percent sales tax on prepared food; it exempts other food purchases.

d) The New Hampshire retail stores have $250,000 in sales. New Hampshire is one of five states with no sales tax. However, it has a room and meals tax rate of 8 percent. New Hampshire considers any food or beverage served by a restaurant for consumption on or off the premises to be a meal.  

e) Mel’s Rhode Island stores earn $300,000 in sales. The Rhode Island sales tax rate is 7 percent and its restaurant surtax is 1 percent. Rhode Island considers Mel’s a restaurant because its retail store has seating.

f) One of Mel’s best customers relocated to Texas, which imposes an 8.25 percent state and local sales tax rate but exempts bakery products. This customer entertains guests regularly and ordered $5,000 of food items this year.

Answer 1

Determination of Mel's sales tax collection responcibilities and calculation of total sales tax liabilities:
a	Food products are exempted from sales tax in Massachusetts. Assuming that bakery products and speciality breads are considered as food items, Mel's bakery would have no tax liabilities in Massachusetts. However, if bakery products and speciality breads are not considered as food items, Mel's bakery would have tax liability of $25,000 ($500,000 x 5%) in Maasachusetts.
b	Sales tax exclude food items but taxes catering and delivery charges @ 6%. Therefore tax liability in Connecticut is $6,000 (90,000 x 6% + 10,000 x 6%)
c	Mel's Maine ratail stores sales tax liability is $16,500 (14,000 on take outs (200,000 x 7%) and 2,500 on in stores meal (50,000 x 5%)
d	The New Hampshire retail stores have no sales tax liability as here sales tax are exempt. However it has Room and Meal tax liability of $20,000 (250,000 x 8%) as here room and meal tax is levied and all food and beverage srved by restaurants are considered as meal.
e	Mel's Rhode Island stores has sales tax liability of $21,000 (300,000 x 7%) and restaurants surtax is $3,000 (300,000 x 1%) as it is considered a restaurants because it has seating.
f	In Texas bakery products are exempt from sales tax. Sales tax liability for Mel here is $412.50 (5,000 x 8.25%) as it exempted specially bakery products and not all food product and it is assumed that speciality bread is not a bakery product. If speciality bread is also a bakery product than it is also exempt and there will not be any sales tax liability. We asuumed that sales are made is speciality bread.