Tax musings on National Taco Day – Wacky Tax Wednesday
- Sales and Use Tax
- Oct 4, 2017 | Gail Cole
October 4, a Wednesday, is National Taco Day. That’s just wrong. National Taco Day should be celebrated on a Tuesday. Can someone fix that for next year?
If my husband and I don’t dish up tacos on Tuesday nights, we get grief from the kids. I like a taco, but I tend to define the term loosely when it’s my turn to cook. As far as I’m concerned, a burrito in a bowl is perfectly acceptable Taco Tuesday fare, but not everyone in the family agrees. I suspect some tax authorities would cry foul as well.
You see, sales and use tax laws often rely heavily on defined terms. The more comprehensive the definition, the less confusion arises down the line, at checkout.
For example, a newly minted Washington law that exempts martial arts classes from sales tax contains an impressive list of the different arts: “karate, kung fu, tae kwon do, Krav Maga, boxing, kickboxing, jujitsu, shootfighting, wrestling, aikido, judo, hapkido, Kendo, tai chi, and mixed martial arts.” The measure also makes clear that “‘martial arts’ means any of the various systems of training for physical combat or self-defense,” including but “not limited to” the above.
Given human creativity, it may not be possible to definitively define “martial arts,” or any type of athletic activity. After all, both aerobics and Zumba were invented during my lifetime, and I’m not that old. The first to teach them for a price needed to figure out if they were taxable or exempt. This can be complicated.
Whenever something new comes along that doesn’t easily fit into existing definitions of taxable or exempt goods or services, action must be taken. This can occur at the legislative level, or at the tax department in the form of a new or revised tax policy or ruling. It can apply to Zumba classes, cloud computing services, and new types of food.
Back to the taco.
The taco has always been open to interpretation. After Lebanese immigrants arrived in Mexico, their gyros gradually morphed into tacos arabes, or Arab tacos: Roasted lamb (and eventually pork) on corn tortillas. When pineapple was added, tacos al pastor were born. Tacos de canasta, tacos de guisados, tacos de fritanga, and tacos de longaniza are all favorites in Mexico City. Head north to the American Southwest and you’ll find the Navajo taco, my taco of choice.
This type of plasticity can complicate food taxability: In theory, a different assemblage of ingredients could make a taxable item exempt, or vice versa.
According to tax lore, Massachusetts does not consider a taco to be a “sandwich.” In resolving a heated dispute between Panera and Qdoba, a Worcester Superior Court judge relied on Webster to define “sandwich” and determined that a taco was not one. The ruling reads, “A sandwich … [is] “two pieces of bread, usually buttered, with a thin layer spread between them. … Under this definition and as dictated by common sense, … the term ‘sandwich’ is not commonly understood to include burritos, tacos, and quesadillas, which are typically made with a single tortilla and stuffed with a choice filling of meat, rice, and beans.”
The New York State Department of Taxation and Finance takes a different stance, defining “sandwich” more broadly. While it doesn’t include the taco in its list of taxable sandwiches, it does reference “burritos” and “wraps,” as well as “gyros” and “croissant sandwiches.” I suspect our Massachusetts justice would find the department woefully short on common sense. (Why is a burrito a sandwich in New York?).
Further complicating the issue, taxability can be determined by how food is sold. Generally, states tax sales of prepared food. They may or may not tax food for home consumption, and they may tax those sales at a reduced rate. This seems simple enough, if a drag to keep straight. But the taxability of food can get almost comically complex.
If you live in Texas, like making tacos at home, and pick up fresh tortillas at a bakery, a new law ensures they’ll be exempt. Had you purchased them in August, they could have been subject to tax if sold warm or with eating utensils. If you live in California and like your tacos hot, you’ll pay tax. If you prefer them cold, they could be exempt: California sales tax generally applies to all sales of hot prepared food but not to sales of cold prepared food.
Since today is National Taco Day, I’ll have to research this topic further, at dinner time. I encourage you all to do the same. Wherever you take your tacos, check if they’re taxable or exempt and let us know in the comments below.