Why mealtimes are more taxing for non-cooks – Wacky Tax Wednesday
A friend of the family recently embraced a vegetable-heavy diet to improve his health and reduce his waistline. He’s now eating at least four cups of vegetables daily and clearly finds the task taxing: “French fries don’t count!” Making matters worse, it’s likely he pays more tax on the food he buys because he doesn't cook, and prepared food is typically taxed at a higher rate than food purchased to prepare at home.
Salad bars seem like an obvious choice for non-cooks on a mission to up their vegetable intake, yet they won’t reduce the tax burden.
In New York, salads are taxed if sold for consumption on the premises, if prepared by the seller and ready to be eaten, or if obtained from a self-serve salad bar. In 1986, the New York State Department of Taxation and Finance felt the need to clarify the policy on “the sales tax status of receipts from the sales of salad ingredients at a self-service salad bar located in a grocery store, supermarket, or other establishment.” It stated that, whether eating utensils were provided or not, when marketed in this manner, these are “prepared foods which constitute a meal or part of a meal and are subject to sales tax whether sold by weight or by volume.”
Therefore, prepackaged salads sold by the pound are a better buy in New York — they’re exempt.
In Colorado, prepared salads and salad bar items are also generally subject to state sales tax, as are heated and prepared meals (should our friend opt for cooked vegetables). However, local taxes may not apply: Cities and counties have the option of taxing food that’s taxable in Colorado, but they aren’t required to levy local sales tax on these items. On the other hand, regional transportation districts (RTD) tax and scientific and cultural facilities district (CD) taxes must be levied on any food that’s subject to state sales tax, and the same is true for rural transportation authority (RTA) tax.
Taxing food in tax-free states
It seems important to address the taxability of prepared food in certain tax-free states, given our vegetable-chomping friend lives in one of them.
New Hampshire imposes a 9 percent meals and rooms (rentals) tax on restaurant meals costing $0.36 or more (I love that the state exempts any meal costing 35 cents or less). This makes New Hampshire susceptible to some of the tax complexity sales tax states face around food.
In 2007, the New Hampshire Department of Revenue felt the need to clarify that “food prepared on the premises” of grocery stores, convenient stores, and gas stations is subject to tax no matter where it’s located in the store (i.e., whether near the “restaurant” area or not). Taxable food includes hot food items, salad bar, and self-serve food carts (except stand-alone olive bars), as well as party platters and combination plates.
However, deli items such as coleslaw and potato salad are exempt from the meals and rooms tax no matter the quantity, “unless sold as part of a combination plate.”
While it has no state sales tax, local sales tax applies to prepared food sales in some parts of Oregon, notably Ashland and Yachats. Both impose a 5 percent tax on sales of prepared food sold in a restaurant (including takeout, to-go, and delivered food). And both Ashland and Yachats define “restaurant,” in part, as an establishment where food or beverage is “prepared or available for consumption by the public or any establishment such as a grocery store, market, convenience store or deli section of any store where the public obtains food or beverage prepared on or off premises in form or quantity consumable then and there.”
I may suggest our friend head over to the Navajo Nation, where tax policy encourages the consumption of fresh fruits and vegetables. While the sale of “minimal-to-no-nutritional value food items” is taxed at 7 percent (higher than the standard 5 percent sales tax), sales of fresh fruits and vegetables are exempt.
One man in search of vegetables may not choose to dwell on sales tax. Businesses that sell food don’t have that luxury. It’s essential they know which products are taxed, where, and at what rate — a challenging task for anyone making sales in multiple tax jurisdictions. Avalara MatrixMaster makes it easy to track product taxability. Learn more.
The 2021 sales tax changes report: midyear update
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