No matter how hot your burrito, it’s still a sandwich in New York – Wacky Tax Wednesday

To ask why a burrito is considered a sandwich in New York, but not Massachusetts, is to delve into one of the most fascinating issues in sales tax today. It has nothing to do with economic nexus, marketplace facilitator laws, or any other topics dominating headlines since the Supreme Court of the United States issued its ruling in South Dakota v. Wayfair, Inc. (June 2018). It’s about the staff of life: bread. Food.

States draw a distinction between “prepared food” and “food for home consumption,” sometimes called “food and food ingredients.” Some states exempt food for home consumption, some tax it at a reduced rate, and some tax it at the general rate like other tangible personal property. By contrast, prepared food is taxed in all states with a general sale tax. Even New Hampshire taxes food served in restaurants — and New Hampshire abhors sales tax.

There are lots of interesting quirks about how states tax food and food ingredients, especially when it comes to products like candy and soda. But some of the wildest sales tax policies have to do with prepared food.

Take the sandwich.

The New York Department of Taxation and Finance has an entire sales tax bulletin devoted to sandwiches. According to TB-ST-835, sandwiches generally are taxable and “include cold and hot sandwiches of every kind that are prepared and ready to be eaten, whether made on bread, on bagels, on rolls, in pitas, in wraps, or otherwise, and regardless of the filling or number of layers.” My favorite bit is this: “A sandwich can be as simple as a buttered bagel or roll, or as elaborate as a six-foot, toasted submarine sandwich.”

A lengthy list of taxable sandwiches is provided. It includes but isn’t limited to burritos, flatbread sandwiches, open-faced sandwiches, and wraps. In fact, it seems the only sandwiches that aren’t taxable in New York are those sold to a purchaser who’s exempt — and then only if the buyer gives the seller a properly completed exemption certificate.

That’s not the case in California. For starters, the California Department of Tax and Fee Administration (CDTFA) distinguishes cold sandwiches from hot sandwiches. Sandwiches categorized as “hot prepared food products” are subject to California sales tax unless otherwise exempt. By contrast, sandwiches not “intended to be in a heated condition when sold” are not hot prepared food products and so generally are exempt.

Hot prepared sandwiches include grilled sandwiches, dipped sandwiches (e.g., the French dip, which comes with hot gravy), and sandwiches heated by infra-red lights, steam tables, and other means. A toasted sandwich intended to be consumed while warm is considered a taxable hot prepared sandwich even if it’s room temperature when served. However, a cold tuna sandwich on toast isn’t considered a hot prepared food even though the bread may be toasted.

The CDTFA doesn’t reference burritos on food tax bulletins, but burritos do pop up in publications for California liquor stores. Apparently, many liquor stores in California have microwave ovens used to heat food products such as burritos.

If the microwave oven is accessible to customers, it’s assumed the consumer would microwave the frozen burritos, so the burrito isn’t taxed: The food isn’t prepared for the customer; the customer prepares the food themselves. Yet if the microwave oven is accessible only to store employees, the sale is considered a sale of prepared food and is therefore taxable. 

In Massachusetts, whether a sandwich is taxable or exempt can depend on where it’s sold, what’s sold alongside it, or who buys it.

For example, a convenience store in Massachusetts must apply sales tax to sandwiches, “whether or not prepackaged or heated.” On the other hand, sandwiches sold from a vending machine are exempt — so long as everything in the machine costs less than $3.50. If just one item in the machine is priced at or above $3.50, all items become subject to sales tax unless the vending machine in located in a school in an area designated primarily for students. In such cases, sandwiches and other foods are exempt from sales tax no matter how costly.

At a university snack shop in the Bay State, sandwiches sold to university students are generally exempt. However, sandwiches sold to faculty and staff are generally taxable, as are sandwiches sold to parents and other non-students. 

Eating a sandwich made by someone else is a simple task. Figuring out how that sandwich is taxed can be complicated. And since people who enjoy making and selling sandwiches probably don’t enjoy figuring out how to tax them, it’s best left to experts like the sales tax automation specialists at avalara.com.