Dishing up quirky fast food sales tax laws – Wacky Tax Wednesday
With Thanksgiving arriving early this year, there seems to be less time than usual to plan and prepare. It’s a good thing, then, that National Fast Food Day is the week before our national day of thanks: For many Americans, getting through the next week with a modicum of sanity is going to require at least one hasty meal.
In tribute to the nation’s first fast food restaurants (and at risk of giving myself a craving for salty fries), here’s a glance into how fast food meals are taxed in some historically significant locations.
New York, New York: The Automat, 1912
America’s first “fast food” joint is said to be a New York City cafeteria that offered customers a selection of premade dishes from coin-operated, glass windows. According to Chain of Fools, Automat restaurants “also popularized the notion of ‘take-out’ food, with their slogan ‘Less work for Mother.’”
Special tax rules apply to sales of food and drink through vending machines in New York. Generally, “items that are taxable when sold in a food store are taxable when sold from a vending machine.” The same goes for exempt foods. However, “hot beverages sold from a vending machine are always exempt,” and “certain items that are taxable when sold by food stores are exempt when … sold from a vending machine for $1.50 or less.” Examples include candy and soda. On the other hand, some foods are always exempt when sold via a vending machine, no matter the price. These include cereal bars, cookies, doughnuts, granola bars, pretzels, popcorn, ice cream, and everyone’s favorite vending machine fare: canned foods.
Wichita, Kansas: White Castle, 1921
To dispel the widespread belief that hamburgers were comprised of “slaughterhouse scraps and spoiled meat,” the first White Castles were designed so customers could witness food preparations.
- Food served without charge to restaurant employees “whose duties are related to the furnishing of meals to the public” is exempt, but meals sold to employees at full or reduced price are taxable.
- Restaurant gift certificates and food given away with a restaurant’s coupon are exempt, but food given away with a third-party coupon is taxable.
- Sales of alcoholic beverages that are subject to the state’s 10 percent drink tax are exempt from sales and use tax, but sales of 3.2 beer are taxable.
- Utilities used for air conditioning, cleaning, heating, and lighting are taxable, but utilities used for cooking and water served to customers (e.g., as water, coffee, tea, soup, etc.) are exempt.
Corbin, Kentucky: Kentucky Fried Chicken, 1930
What we know and love as Kentucky Fried Chicken started as Sanders Court and Café in the front room of a gas station.
“Food and food ingredients for human consumption” are generally exempt in Kentucky. However, candy, prepared food, and soft drinks are excluded from the definition of “food and food ingredients” and are therefore taxable. Yoo-hoo, which isn’t considered a soft drink because it contains milk, is exempt unless served as a prepared food. So, a Yoo-hoo purchased at a Kentucky Fried Chicken would be taxable, while a Yoo-hoo purchased from a gas station convenience store would be exempt.
Quincy, Massachusetts: Dunkin’ Donuts, 1950
Having spent my childhood in New England, I have a special place in my heart (and tummy) for Dunkin’ Donuts.
According to the Massachusetts Department of Revenue, “Certain food and beverages are not considered meals when sold by a restaurant for off-premises consumption, and their sales are not subject to the sales tax.” These include “bakery products when sold in units of six or more” (e.g., six doughnuts, or a mix of croissants, doughnuts, and muffins).
However, “prepared meals … or other food combinations, to the extent that such items are sold by a restaurant whose principal business is the preparation or sale of such items in such form as to be available for immediate consumption without further significant preparation, whether for on or off premise consumption, are not to be excluded” from sales tax as described above.
Given that, would the sale of a dozen doughnuts from a Dunkin’ Donuts be taxable or exempt? Your guess is as good as mine.
Restaurants fast and slow have better things to worry about than sales tax, but sales tax still needs to be managed properly. Tax automation software can help. Learn more.
Hat tip to delish.com for its brief history of speedy eats.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.