It’s Fix the Tax Code Friday!
Earlier today, I posted a piece on the new ruling in the UK that Pringles, made mostly of things “other than potato” or not, would be considered a snack food that does not meet an exemption for purposes of sales tax/VAT.
In many countries, states and municipalities, foods are exempt from sales tax and other value-added taxes. But as our world changes, as scientific advances occur, as manufacturers and marketers become more creative, our idea of “food” is changing. So what should qualify for an exemption? All foods? Natural foods? Processed foods? What about genetically altered foods? Artificial foods?
So, today’s Fix the Tax Code Friday is a question that the high courts in the UK are struggling with:
What should qualify as “food” for the purposes of a sales tax exemption?
Must there be a natural component? A threshold percentage of natural components? Or must it merely be edible?
When I was a kid, I used to love the idea of Pringles potato chips snacks. They were all the same size. They were all the same color. They lasted forever. And they came in a can. The appeal to me, and other snackers, was the consistency and sameness. They were so very different from all of the other “chips” which were all (gasp) in irregular potato shapes in wrinkly foil bags. How did Pringles do it?
Last year, the world learned the reason for this snack food mystery: Pringles are actually not potato chips. They aren’t even mostly potato.
Surprisingly, it was the manufacturer of Pringles making this argument. Proctor & Gamble did not want Pringles to be considered potato chips – or potato crisps – so that the chips would be exempt from the snack tax. The company claimed that Pringles are not potato chips – or even like potato chips – since they are cooked from baked dough and not slices of potato.
The court agreed.
This week, however, a three-judge appeals court, reversed the lower court decision. They declared Pringles a non-exempt snack and therefore, subject to the snack tax.
Proctor & Gamble spokesman Paul Fox did not guarantee another appeal but did say that it is under consideration. He added, “Obviously we’re disappointed with the court’s decision. We’ve always asserted that Pringles should be tested on the same manner as other savory snacks of similar composition.” In other words, those other savory snacks masquerading as potato chips but really not made out of potatos…
In the end, the court ruled that the ratio of ingredients didn’t matter. Even if it’s not really a “potato chip” because of the lack of potato (insert throat clearing here), it’s still taxable.
Does this strike anyone else as odd? It’s a massive case of letting the tax tail wag the dog. Proctor & Gamble is clearly so eager to escape this sales tax that they’re willing to parade their “snacks” in public as a potato chip substitute. We now know that there is only about 40% potato in the “chips” – and that is potato flour. In fact, counsel, noting that the chip was mostly flour, fat and other ingredients, claimed:
If a product has a number of significant ingredients it cannot be said to be ‘made from’ one of them.
Ewww.
I don’t know about you but this seriously decreases the chances that I’m picking up a bag can of potato flour snacks at the market for the holiday weekend.
If you say potato, I say give me an actual potato.
A court in London has ruled that Pringles, the iconic snacks in the ubiquitous red tube, are not potato chips.
Really.
Apparently, there are not enough potatos in Pringles to have them legally qualify as “potato chips” or “potato crisps.” That matters to the tax office because in the UK, most food is exempt from a steep 17.5% sales tax. The taxing authorities, however, claimed that Pringles fell under an exception for potato chips, sticks or puffs and “similar products made from the potato, or from potato flour, or from potato starch.”
Procter & Gamble, Pringles parent company, said no. The company claimed that Pringles are not made like potato chips since they are cooked from baked dough and not slices of potato; in fact, Pringles are just 42% potato. Additionally, Pringles have a shelf life of 15 months, versus four months for potato crisps – chew on that for a bit.
The company further argued that potato chips “give a sharply crunchy sensation under the tooth and have to be broken down into jagged pieces when chewed,” while Pringles are “designed to melt down on the tongue.”
The courts agreed: Pringles is not made largely from potatoes, does not look, feel or taste like a potato chip and is therefore, tax-exempt.
I’m not quite sure what kind of victory that is, really. Pringles “wins” because it proved that it’s not the product that it markets itself as… Or does it? On the Pringles web site, Pringles is consistently referred to as a snack – and not as potato chips. And now, legally, a Pringles chip has been ruled as something (I’m not sure what) other than a potato chip. My four year old, however, begs to differ: just this morning, she declared them “potato chips.” I think I just discovered the secret to the UK Tax Office’s appeal…
(Hat Tip: TaxProf Blog)
