I have zero intention of probably ever selling cakes, I just like to lurk in your forum as you guys are so knowledgeable and have some crazy customer stories, so pardon me for intruding.
But for fun, I was looking up Iowa's law. http://www.extension.iastate.edu/Publications/PM1294.pdf
"Licensing is not required to sell non-potentially hazardous food directly to consumer customers for consumption off-the premise" So if someone sells cakes/goodies that dont need to be refrigerated, they dont need a license. Is that correct?
Edited to fix my quote

Is that supposed to be "consumption ON premises"? If so, then as long as they eat the entire cake at your house, then you would not have to be licensed. If they take the cake away from your premises, then the above does not apply.

Thanks for catching that, Leah. I fixed it. It should be "off the premesis" So it is saying anyone can bake something that doesnt have to be refrigerated and sell it without a license? It just seems so contrary to most of what I have read on here

I read the whole page and it doesn't look like you have to be licensed, as long as you don't use perishable fillings (I don't) and shelf stable icings (I do.) I'd double check with the local health department, because sometimes local laws/reg supersede state laws/regs.

You could have it easy!

I live in Iowa, and that is my interpretation. As long as you are not wholesaling to restaurants, and you stick to potentially non-hazardous foods sold retail to be consumed elsewhere - specifically bakery products - you are fine and do not need to license, inspect, charge sales tax, etc. Don't WE live in a great state!!!

I live in Iowa, have a home-based business, and have spent more time than I care to think about talking with various departments and researching the laws in Iowa. I read through the entire State of Iowa Food and Consumer Safety guidelines. I've attached Chapter 30 that defines terms and talks about licensing overall, as well as Chapter 34(137D) that deals specifically with home based food businesses.

To quote Chapter 30:
"Home food establishment means a business on the premises of a residence where potentially hazardous bakery goods are prepared for consumption elsewhere. Annual gross sales of these products cannot exceed $20,000. This term does not include a residence where food is prepared to be used or sold by churches, fraternal societies, or charitable civic or nonprofit organizations. Residences which prepare or distribute honey, shell eggs or nonhazardous baked goods are not required to be licensed as home food establishments. Home food establishments with annual gross sales of $1,000 or less in sales of potentially hazardous bakery products are exempt from licensing under Iowa Code section 137D.2, if the food is labeled and the label states that the food comes from a kitchen not under state inspection or licensure and that labeling complies with rule 481--34.3(137D)."

So the condensed version is:

1) If you're selling only nonhazardous baked goods you don't have to be licensed at all, whether youI sell $1 or $1,000,000 per year.
2) If you sell less than $1,000 per year of hazardous bakery products you don't have to be licensed but you have to put a label on your potentially hazardous food saying that it came from a kitchen that hasn't been inspected.
3) Once you get a home food establishment license, it covers you unless I sell more than $20,000 year - then you fall under the category of a food processing plant.

What exactly is the difference between hazardous and non hazardous baked goods?

Potentially hazardous foods are those that need to be refrigerated or held warm. With regards to cake, if the cake, filling, or icing needs to be refrigerated, then it's potentially hazardous. If you're using shelf-stable fillings (like the H&H sleeve fillings) or non-refrigerated shortening-based buttercreams, then it's nonpotentially hazardous.

and don't forget about pets. can't have the business in your home if you have pets. that's why i rented a kitchen and then we built a separate kitchen on our home. where are you located? The health dept. in Black Hawk county is awesome. My inspector is Larry S. and will answer any questions at all. they are a great resource.