What Is Legal

Business By traci_doodle Updated 25 Mar 2012 , 9:32pm by traci_doodle

traci_doodle Posted 24 Mar 2012 , 12:58pm
post #1 of 22

Okay everyone, please be nice. I just have a "simple" question.

I know it's illegal for me to sell my cakes, but is it legal for a friend to buy all the ingredients and supplies for me for a cake? I'm just tired of losing money all the time.

21 replies
BizCoCos Posted 24 Mar 2012 , 1:51pm
post #2 of 22

yes they can buy all your ingredients and that's ok, however no tip can be accepted I believe. let's see what others have to say.

costumeczar Posted 24 Mar 2012 , 2:03pm
post #3 of 22

I've heard people on here say that technically that isn't kosher either, it's something to do with the fact that you're being reimbursed for food that's being prepared in a non-inspected kitchen or something along those lines. but seriously, who's going to care? If it's between friends, whatever. But if you want to feel better about it go over to their house to bake the cakes and let them clean up the mess icon_wink.gif

costumeczar Posted 24 Mar 2012 , 2:19pm
post #4 of 22

You should probably call the HD in New York about it, really. Aren't they pretty strict and weird from county to county? It would be better to call and ask than to gather opinions here!

traci_doodle Posted 25 Mar 2012 , 12:37am
post #5 of 22

Actually, I'm moving to California in two months, so I'm more curious about things there. Things are strict in NY, but I get the sense things are even stricter in CA. I just can't afford to keep giving away my cakes, but I don't want to have to stop making them. icon_sad.gif But where there's a will, there's a way, right? Maybe I'll come up with a second hobby to fund my first hobby. icon_wink.gif

leah_s Posted 25 Mar 2012 , 12:54am
post #6 of 22

You might want to PM Jason Kraft. He's in Cali and knows the laws there, but my impression is that Cali is extremely strict.

And technically, when money changes hands, you're selling/in the biz. OTOH, unless the HD inspector is standing in your kitchen . . .

traci_doodle Posted 25 Mar 2012 , 2:01am
post #7 of 22

Leah--what does OTOH mean?

cheatize Posted 25 Mar 2012 , 2:03am
post #8 of 22

OTOH= on the other hand.

jason_kraft Posted 25 Mar 2012 , 2:27am
post #9 of 22

It really varies from county to county. In general, counties that are urban/suburban (SF, Santa Clara, LA, Orange, etc.) tend to be stricter due to higher population density and more resources available for enforcement, while more rural counties tend to be more laissez-faire. Of course this is only a generalization, the only way to be sure is to ask your local health dept.

Everyone has a different risk tolerance, but personally I think if you make a cake a few times a year for family and close friends and have them buy your ingredients that's not a big deal. Once you start branching out into these types of transactions with friends of friends, acquaintances, and strangers on a regular basis that's where you expose yourself to much greater risk, especially if you advertise and/or act like a business (hand out business cards, issue invoices, etc.).

If you want to keep decorating cakes on a regular basis without losing too much money you have a few options:

A. Wait for the California CFL to be passed (this may happen within a few months or several years from now)
B. Decorate cake dummies and reuse them
C. Find a commercial kitchen you can rent and launch a real business (this doesn't require too much up-front capital but you will need to spend a lot of time putting together a business plan or find a business manager to work with)
D. Work for someone else as a cake decorator

traci_doodle Posted 25 Mar 2012 , 3:21am
post #10 of 22

I would love for the CFL to pass in California, and on the sooner side (is a year too much to hope?). I think that would be my best bet. I will only be in CA for four years, so I don't think starting up a business would really be the best idea for me. As for renting a kitchen or working for a decorator, I am a SAHM mom, first and foremost, and anyway, I don't want to make more than 1-2 cakes a month, at most.

scp1127 Posted 25 Mar 2012 , 4:03am
post #11 of 22

The codes usually use the word compensation, just as the IRS defines business. This word is used to incorporate barter, which is taxable per the IRS. So if they give you money, ingredients, or cut your grass, that is considered compensation... a business transaction that is also taxable (state and fed). I know people hate my answers, but that barter, being a business transaction, is also subject to sales tax where applicable. So with no business license, there can be no local and/or state sales tax license and proper taxes are not collected.

traci_doodle Posted 25 Mar 2012 , 4:14am
post #12 of 22

Well, I can still help a friend out at her house, right? Or, what if they buy the ingredients, but I return the leftovers? I haven't gained anything in that case.

jason_kraft Posted 25 Mar 2012 , 5:12am
post #13 of 22
Quote:
Originally Posted by scp1127

The codes usually use the word compensation, just as the IRS defines business. This word is used to incorporate barter, which is taxable per the IRS. So if they give you money, ingredients, or cut your grass, that is considered compensation... a business transaction that is also taxable (state and fed). I know people hate my answers, but that barter, being a business transaction, is also subject to sales tax where applicable. So with no business license, there can be no local and/or state sales tax license and proper taxes are not collected.



Sales tax only needs to be collected in CA if the food is consumed on-site with a seating area, otherwise it is exempt.

I do agree that if any compensation is accepted (including barter) it should be reported to the IRS for income taxes, even if the business is not operating legally according to the health dept. By the way it is also quite possible to get a business license from a city without a health dept inspection, since cities and counties don't typically communicate -- of course the business would still be operating illegally and could be shut down at any time by the HD.

jason_kraft Posted 25 Mar 2012 , 5:26am
post #14 of 22
Quote:
Originally Posted by traci_doodle

Well, I can still help a friend out at her house, right? Or, what if they buy the ingredients, but I return the leftovers? I haven't gained anything in that case.



In a legal sense you would be OK if you made the cake in the customer's kitchen (even with your own ingredients and equipment) thanks to the personal chef exemption. If you don't use the customer's kitchen, any exchange of goods and services is considered compensation, even if you take a loss.

That said, if you look at things pragmatically, making a cake every so often for friends and family if they buy you ingredients is a very low risk proposition, assuming there is no advertising, no business name, and no one mentions that they bought you the ingredients.

scp1127 Posted 25 Mar 2012 , 6:38am
post #15 of 22

Jason, that is why I wrote if it applied in the area. I write in generalities because so many other people from other areas read these posts and may not have thought about sales tax. In all of my areas, I must collect 6% and pay each area a breakdown of sales from each state.

Baking among friends and relatives isn't really compensation. If it was, every family picnic, reunion, Christmas dinner, or any meal made with friends would be a violation. The moral code would probably be to ask yourself if you would normally do a favor for this friend and does this friend do things for you? Branching out to friends of friends, an acquaintance at church, etc., would be beyond personal favors.

Edit:

Delivery is taxable in both of my states. So even though the product itself is not subject to sales tax in an area, check with the tax office or online to see if delivery (of anything) is taxable. If you get audited, this may be a problem, especially for those who charge a lot for wedding cake delivery (and possibly set-up) and have years of back deliveries that will incur interest and penalties if found.

traci_doodle Posted 25 Mar 2012 , 12:38pm
post #16 of 22

yeah, I'm pretty much a friends-only type of baker (I don't have any family close by). I made a cake once for a lady at church I kind of knew and it was horrible. I don't even want to deal with that. I like making cakes for people who appreciate what I do. icon_smile.gif

A friend of mine was out of flour, so asked to borrow two cups. I loaned her some, and in return she gave me a loaf of bread she made with the flour. That type of exchange is common in my circle of friends. If the HD wants to come down on us for helping each other out, that seems pretty anal.

MimiFix Posted 25 Mar 2012 , 6:01pm
post #17 of 22
Quote:
Originally Posted by traci_doodle

A friend of mine was out of flour, so asked to borrow two cups. I loaned her some, and in return she gave me a loaf of bread she made with the flour. That type of exchange is common in my circle of friends. If the HD wants to come down on us for helping each other out, that seems pretty anal.



Of course this is acceptable. Of course! I live in NY and know the state CFL and county retail rules quite well. Although some of their rules may seem odd, overall they are exceptionally reasonable and great people to work with.

traci_doodle Posted 25 Mar 2012 , 6:51pm
post #18 of 22

I just hope CA is as reasonable. icon_smile.gif

justsweet Posted 25 Mar 2012 , 7:57pm
post #19 of 22

here is the cottage food law bill for CA. One step of voting is suppose to take place this Tuesday.

http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_1601-1650/ab_1616_bill_20120208_introduced.pdf

You mention you are a stay at home mom, one thing in the bill is no babies or small children in the house during your working time (other states have this in their bill). Also, no pets in the house.

traci_doodle Posted 25 Mar 2012 , 8:51pm
post #20 of 22

Is it no kids in the house, or no kids in the kitchen? I do a lot of baking at night or during naptime, when my kids are asleep. That makes no sense to say no kids at all in the house.

jason_kraft Posted 25 Mar 2012 , 9:11pm
post #21 of 22

No kids or pets in the kitchen while items for sale are being prepared.

From the bill:
Infants, small children, or pets shall not be allowed in the
home kitchen during the preparation, packaging, or handling of any cottage food products.

traci_doodle Posted 25 Mar 2012 , 9:32pm
post #22 of 22

Thank you, Jason. That makes much more sense.

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