Preheat the oven to 350 degrees F. and butter and flour to 7 or 8 inch cake pans.
In a bowl, combine the sugar and lemon zest. Use your fingers to mash the zest into the sugar to release the oils from the lemon zest. Add this to the bowl of a stand mixer.
Add the softened butter and eggs and beat on high until light and fluffy, for a couple of minutes.
In a separate bowl, combine the sifted flour, baking powder, baking soda, and salt. Add this to the mixer and combine.
Add the lemon juice, oil, eggs, half of the milk, and the vanilla. Beat on medium-high speed for 2-3 minutes.
Add the remaining milk and mix until just combined.
Evenly divide the batter between the prepared cake pans and bake for 26-32 minutes, until a toothpick inserted in the middle comes out clean.
Allow the cakes to rest for 10-15 minutes, then place on a wire rack to cool.
While the cakes are cooling, prepare the icing by beating the cream cheese and butter together to 3-5 minutes, until fluffy.
Add the powdered sugar, cream, and vanilla and mix for 5 minutes until fluffy.
Add desired amount of yellow food coloring and mix again.
Ice the cake as desired, after it has cooled, and top with fresh lemons.
Best served chilled.