The WSJ had an interesting article today about a quirk in New York’s sales tax code. Under current rules, prepared foods are taxed at a higher rate than unprepared foods. On the surface this seems logical. Rich people eat out, poor people don’t, and if the goal is a progressive tax system, this would seem a reasonable distinction. The problem then becomes how one defines a prepared food versus unprepared.
In the case of bagels, New York tax collectors have gotten very specific: sliced equals prepared and unsliced, unprepared. Sound crazy? You’re not the only one. Up until now, the law has largely been unenforced, but apparently the State’s coffers are so depleted they are beginning to collect and Bruegger’s is the first target. I remember learning about this law in state tax class during my MACC program, so the distinction has been in existence since at least 2005. If this is not a prime example of bright line rules taken to the verge of the ridiculous, I don’t know what is. So, bagel shops, don’t slice that bagel unless you’re willing to collect the extra tax from your customers. Just give them a knife so they can do it themselves.
What’s the tax on a bagel? It depends how you slice it—or in the case of New York, if you slice it. State tax officials, under orders from cash-strapped Albany to ramp up their audit and compliance efforts, have begun to enforce one of the more obscure distinctions within the state’s sales tax law. In New York, the sale of whole bagels isn’t subject to sales tax. But the tax does apply to “sliced or prepared bagels (with cream cheese or other toppings),” according to the state Department of Taxation and Finance. And if the bagel is eaten in the store, even if it’s never been touched by a knife, it’s also taxed.