How to run a bakery in the US: sales tax, cottage food and allergen labels

A bakery sells the oldest food there is, and the rules around it are anything but old. Whether a croissant is taxed depends on where the customer eats it. Whether you can bake from home depends on the state. And since 2023, sesame has joined the list of allergens you must label. Take the three in turn.

Are baked goods taxed when they are taken away?

It depends on the state, and the edges are narrow. A common pattern is that bread and baked goods are groceries when sold to take home, and prepared food when sold to eat on the spot. Florida is a good example of how fine the line gets. Under its tax rule, bakery products sold for consumption off the premises are exempt, but products sold by a bakery with eating facilities are taxable when they are sold to eat in, and items sold hot are taxable either way. A bagel you toast for a customer is taxable whether or not the bakery has seats.

The same Florida rule shows the burden of proof that other states echo. A bakery with seating that makes exempt takeout sales must keep separate records, such as a dedicated key on the register. Without them, an auditor can treat all sales as taxable. The rule also sets a presumption that small quantities, five items or fewer, are for eating in.

Other states tax baked goods however they are sold, exempt them with no conditions or tax them only when heated. So:

• Find your state's rule on bakery products, not restaurant meals in general.
• Ask whether a sit-down area changes the treatment.
• Set up separate register keys for take-home boxes and eat-in items.
• Check how the state treats a hot item, a sandwich or a coffee, because those are almost always prepared food.

The guide to sales tax for US food businesses is the place to start, with state detail in the guides for Florida, Ohio, Tennessee and Michigan.

What is a cottage food law?

A cottage food law lets you make low-risk foods in your home kitchen and sell them directly to customers without a commercial kitchen. Most states have one, and bakers are the main users. The rules sit in a handful of familiar boxes:

• Which foods qualify. Breads, cookies and cakes that do not need refrigeration usually do. Cream-filled or custard items usually do not.
• A cap on annual sales. The Farm-to-Consumer Legal Defense Fund's chart, updated in July 2026, lists Florida at $250,000 a year and California at $50,000 a year as of 2015, with Oregon listed with no limit.
• Where you may sell: directly to the customer, at a farmers market, online with conditions, or in some states to stores and restaurants too.
• Registration, a food handler course or an inspection in some states, and none in others.
• Labels that state the kitchen is not inspected.

A cottage license does not let you open a counter. If you want walk-in customers, wholesale to cafes or a shopfront, you need a licensed commercial space and the health permit that goes with it. Cottage rules rarely cover cooked meat, dairy-heavy items or products with a short shelf life. Read your state's page before you promise a wedding cake to anyone.

What allergen labels does a bakery need?

Packaged foods must declare the major allergens. The federal list has nine: milk, eggs, fish, crustacean shellfish, tree nuts, peanuts, wheat, soybeans and, since 1 January 2023, sesame. The declaration can be in the ingredient list, in a "Contains" statement or in parentheses after the ingredient. Sesame matters to bakers, because seeded buns, bagels and some flours carry it.

Unpackaged items are different. The FDA Food Code, a model that states adopt in their own form, asks the permit holder to notify customers in writing of any major allergen in an unpackaged item sold or served. The 2022 edition made that explicit. In practice that means a card by the case, a printed list at the register or a menu board. Many states and cities add their own allergen training or notice rules. See allergen rules for US food businesses, the Massachusetts allergen awareness rules and the multi-state allergen and menu labeling guide.

How do you stop cross-contact?

Labeling tells the truth about the recipe. It does not protect a customer from flour dust. Bake the nut-free items first, wash tools between batches and store allergen ingredients below and away from the rest. Train every counter worker to say "I will check" rather than "I think so", and to ask the baker.

What does a bakery owner do this week?

• Pull the register tax settings and compare them with your state's bakery rule.
• Write an allergen card for each item in the case, including sesame.
• If you bake at home, check your state's cottage food cap and venue list.
• Keep one folder with permits, labels and your supplier ingredient sheets.

More guides for your business:

• How to run a hotel restaurant in the US
• How to run a food hall stall or market stand in the US
• How to organize a food festival in the US

More in the US guides for food businesses.