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Wednesday, August 25, 2010

The Bagel Tax

A few stories have been published this week about New York enforcing it sales tax on certain types of food. The food of focus - bagels. When is a bagel subject to sales tax? The answer is that if it is sliced, it is taxable, and if not sliced it is not taxable. The rationale seems to be that if sliced, it is like taxable restaurant food and if not sliced, it is non-taxable food. But, it all sounds "wacky" - see Forbes article, "Wacky Sales Tax Rules Cover More Than New York Bagels," by Janet Novack (8/25/10). Also see Wall Street Journal, "Sliced Bagels, Taxes on Top," by Jacob Gershman, 8/24/10.

Complexities and oddities easily arise when something is going to be excluded from tax or taxed differently. When a subset of items or activities is exempted, it becomes crucial to define what is taxed and what is not and that is not always an easy thing to do. It would generally be better to not have any exemptions, such as by taxing all food, and then providing relief to low income taxpayers with a refundable income tax credit.

What do you think?

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