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Tuesday, April 26, 2011

NY Tax Law Defines "Sandwich"

I have blogged about this before - oddities of state sales tax rule definitions of what is taxable and what is not. For example, certain "toasted sandwiches" in California are taxable (3/10/10 post). On April 13, 2011, the New York Dept. of Taxation and Finance issued Tax Bulletin ST-835 that defines "sandwich" - a taxable item in New York.

In case you are wondering, per the State of New York ...

"Sandwiches 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. A sandwich can be as simple as a buttered bagel or roll, or as elaborate as a six-foot, toasted submarine sandwich."

The bulletin then lists many examples of sandwiches including peanut butter and jelly (I assume also taxable without the jelly) and burritos.

This might seem odd, but clearly, there must have been some issue of what is a sandwich for this bulletin to be issued. I still have questions though. What does "otherwise" in the above definition mean? Does it include something wrapped in seaweed and rice (otherwise known as sushi)? What about if you order your sandwich without the bread?

This all just illustrates the complexity of having exemptions and special rules in a tax system. They require definitions which then lead to questions like I pose above. The remedy is to tax everything with a lower rate. And to provide relief to low-income taxpayers in a different way (such as a refundable income tax credit). Another remedy regarding sales tax and food would be to exempt very broad categories. For example, exempt all food as defined as anything you eat that goes through your digestive system.

What do you think?


Mary O'Keeffe said...

I believe this sandwich definition is part of a broader issue in NYS tax policy. I'll attempt to shed some light on that context here.

The general principle long embodied in NY sales tax law is that grocery store purchases of food are sales tax exempt but restaurant meals (including take-out purchases of ready-to-eat meals) are not. Presumably this is on the theory that the former are a necessity while the latter are a luxury.

But the line between grocery stores and restaurants is increasingly blurring, since many grocery stores these days now effectively operate little restaurants right inside them. What is the difference between buying a sandwich or salad at a free-standing deli (clearly a restaurant and therefore subject to sales tax) and buying a sandwich or salad at a deli counter in a supermarket that has an adjacent seating area?

Then again, even traditional free-standing delis sold some items in bulk (e.g., cheese, cold cuts, bagels by the dozen) that were more comparable to traditional grocery store tax-exempt food purchases than to restaurant meals.

So, where to draw the line? A big bagel restaurant chain had long assumed that selling plain bagels (sliced or unsliced) in any quantity was tax-exempt, while selling bagels with "stuff" on it (butter, cream cheese, lox, cold cuts, etc.) was taxable.

However, a year ago, the state tax department informed the bagel chain that they were actually liable for sales tax on all the plain unsliced bagels they had sold and required them to remit taxes on all those sliced bagel.

After further discussions and deliberations (and a new governor and new commissioner of revenue), we now have a new state of affairs, which you can read about here:

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Unknown said...

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