Preheat oven to 350°F. Grease and flour three 8x2-inch round cake pans.
In the bowl of an electric mixer fitted with the paddle attachment, cream butter and sugar until light and fluffy. Add the eggs, one at a time, and the vanilla. Continue mixing until well incorporated.
In a separate bowl, combine flour, baking powder, and salt. With the mixer at low speed, alternately add flour mixture and milk. Ending the process with flour mixture. Mix about 1 minute. Add sour cream and mix until well incorporated.
Fold in rainbow sprinkles. Pour the batter evenly into the prepared pans and bake for 30-35 minutes or until a toothpick inserted in the middle comes out clean.
Remove from oven and let the cakes cool in the pan for 20 minutes. Remove from pan and set in a cooling rack. Cool completely.
Assemble cake with cream cheese frosting. Place one cake layer, bottom side up, on a plate. Spread ½ cup cream cheese frosting. Top with second layer, bottom side up, and ½ cup cream cheese frosting. Top with remaining layer, bottom side up. Reserve about ½ cup of frosting for rosettes decoration on top. Ice the cake with the remaining frosting. Decorate with rosettes by using a pastry bag fitted with the 1M tip.
Carefully, using your hands, apply rainbow sprinkles to the bottom third of the cake. Sprinkle extra rainbow sprinkles on top.