As tax officials all over the country ramp up tax revenue collection efforts (the Philly “blogger tax” being a prime example), state tax officials in New York have officially crossed the line, according to many in the Empire State. The state Department of Taxation and Finance has targeted their beloved bagels.

Okay, it’s not really a bagel witch hunt. Like the business privilege tax brouhaha in Philly, this is enforcement of a tax already on the books. Since a lot of money changes hands in New York, the state is looking to bump its revenues by increasing efforts to collect sales tax already due (online sales were one of the first targets).

Some sales tax laws are easy to enforce. But food, in particular, can be tricky. And that’s what happened in New York. The bagel controversy revolves around the question of what makes a bagel a “prepared food.” In the state of New York, the sale of whole bagels for takeaway isn’t subject to sales tax. But if you eat it in the store, it’s now considered taxable.

Even more confusing, if you transform the bagel in any way – add a topping like cream cheese or lox – or take a knife to the bagel, it’s taxable.

If it sounds like it would be hard to track and tax properly, especially if your bagel sales volume is pretty high, it is. Failure to comply can cause all kinds of problems. Just ask Kenneth Greene, who owns all Bruegger’s Bagel franchises in the state (give me a minute while I flashback to many a memorable bagel moment at the Bruegger’s on Ninth Street in Durham, NC). Greene found out that he was out of compliance with the bagel sales tax nuance and had to pay a considerable amount to settle with the state. Going forward, Greene is making an effort to comply with the tax laws – but it’s apparently ticking off his customers. He told the WSJ, “They felt we were nickel-and-diming them. They thought we were charging them to slice a bagel.”

Those customers should save their bagel-rage for the legislature. The law isn’t terribly clear to merchants, making uniform enforcement difficult. For its part, the Department of Taxation and Finance for New York has promised to offer some additional guidance on the matter.

But I wouldn’t expect things to get easy across the state – or the country, for that matter. Other states have similar laws. It often matters, for example, whether food is served hot or cold or on or off premises. Remember that it’s an election year. No politician in their right mind wants to suggest raising taxes. It’s all about enforcement. Expect these loopy little laws to get a lot more attention.

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Author

Kelly Erb is a tax attorney and tax writer.

Comments

  1. Just yet another example of the state trying to fix budgetary problems without addressing spending. Most bagel places on “The Island” (lawng island) don’t take credit cards or debit cards, so first we are dealing with an all cash business. Then to compound the problem that most cashiers are younger so that may be an issue on enforcement. Then to add to the problem – Come on its ridiculous lol

    Maybe if NY State (or philly or one of the other hundred near bankrupt states/cities/localities) figured out how to slow down spending they wouldn’t have to go after .08 of every bagel which was cut and slathered with butter.

  2. But Even – consider the genius of it all. *IF* those bagels were coated in transfat and served with a soda, NY would really rack up the taxes. It’s genius! Budget problem solved, right? 😉

  3. Really? We can declare war and rubberstamp the Patriot Act in record time but legistlators cannot fix and simplify laws like this! Sometimes I feel we do deserve to go the way of the Roman Empire

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