The final requirement for the section 13(a)(4) exemption is that
more than 85 percent of the establishment's sales of the goods it makes
or processes, measured by annual dollar volume, must consist of sales
made within the State in which the establishment is located. A retail
establishment of the type intended to be exempt under this exemption may
also sell goods which it does not make or process; the 85-percent
requirement applies only to the sales of goods which are made or
processed at the establishment. This must not be confused with the
additional test which requires that the establishment, to be exempt,
must derive more than 50 percent of its entire annual dollar volume of
sales of goods from sales made within the State. (See Sec. 779.339.) In
other words, more than 85 percent of the establishment's annual dollar
volume of sales of goods made or processed at the establishment, and
more than 50 percent of the establishment's total annual dollar volume
of sales of all the goods sold by the establishment, must be derived
from sales made within the State. An establishment will not lose an
otherwise applicable exemption under section 13(a)(4) merely because
some of its sales of goods made or processed at the establishment are
sales for resale or are not recognized as retail sales in the particular
industry. Sales for resale, such as wholesale sales, and other sales not
recognized as retail sales in the industry, will be counted in the 25-
percent tolerance permitted by the exemption. (Cf. Arnold v. Ben
Kanowsky, Inc., 361 U.S. 388.) Thus, for example, a bakery otherwise
meeting the tests of 13(a)(4) making and selling baked goods on the
premises nevertheless will qualify as an exempt retail establishment
even though it engages in the sale of baked goods to grocery stores for
resale if such sales, together with other sales not recognized as retail
in the industry, do not exceed 25 percent of the total annual dollar
volume of the establishment.