I think this is just another example of failings in the bureacracy of the state (and I work for the state of VA, so I guess I can complain about the inadequacies!
) I think they told you incorrectly though, b/c as it has been explained to me many times....... prepared food and convenience food is sold with the 5% tax....even if you don't prepare it on site. Raw and unprepared foods from the grocery are taxed at 2.5%
This makes some sense, really. Often a caterer doesn't prepare any of their food onsite either. For example, we have a woman that prepares all of our lunch meeting food (sandwiches, usually) at her home (often including cakes and cookies, for that matter) and then drops it all off to us in the lobby. We take it upstairs and set it out and serve it ourselves, so really she hasn't done anything more than make it ahead of time, at her home, and then come drop it off.....same as you or I would do with a cake or dessert. Yet we are taxed at the 5% prepared food rate......actually the 9 1/2% prepared food rate that is the current rate in Richmond City.
Actually, one gruff state employee told me "If the bakery is charging 9 1/2% tax on a wedding cake that they make, what makes you think your wedding cake would be taxed any differently?" Hmmmm.......
Clearly there is a lot of confusion among the state employees that are supposed to know the rules, as they are all telling all of us different things.
I guess I would just keep the date and name of the person you talked to, so that at least you have some documentation to offer if they ever try to question what you are doing.
Be careful though and don't assume that acceptance of your tax return is a guarantee of being "correct". The state charged me an extra $270.00 in taxes this year, because of an accidental computing error on my 2003 taxes that they just got around to finding.......
Good luck to everyone trying to figure this out!