Selective Sales Taxes, Sliced Bagels

August 25, 2010

Selective Sales Taxes, Sliced Bagels

Bagel The Wall Street Journal ran an article about how the state of New York is assessing taxes on sliced or prepared bagels — but not on unsliced bagels — at around $0.08 per bagel. The article illustrates the fact that selective taxes come with high costs of compliance.

It also shows the way in which high selective taxes negatively affect businesses — in this case, bagel stores. This tax could cause customers to patronize restaurants that are not subject to a higher marginal tax rate, instead of frequenting bagel stores. (This leads me to wonder whether the pizza or sandwich industries were behind this measure.)

What is the rationale of taxing sliced bagels over non-sliced bagels? Over other breads? Over other food products? Is consuming sliced bagels a behavior that should be deterred?

There are many calls to tax “sinful” products such as soda, cigarettes, alcoholic beverages, fatty food, and tanning because their consumption is linked to health conditions like obesity and cancer. Is consuming sliced bagels, as opposed to non-sliced bagels, similarly linked to a negative health condition?

I wonder whether restaurants in states that border New York are benefiting from increased sales of sliced bagels.

This is a teachable moment for the state government in Missouri. Instead of assessing a complicated myriad of selective taxes, like New York is doing, Missouri should implement a tax climate that is broadly based.

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5 Comments »

Christine – we already have our own variation on this in Mo. Food is taxed at one rate if you buy it from a grocery store, and at another rate if it’s from McDonald’s. Why?

Food is even taxed at different rates from the same establishment based on whether you carry it out (groceries @ the grocery store) or eat it in (food/salad bar @ the grocery store). And it’s the EXACT SAME FOOD!

Pretty sure New York is the state that taxes snack foods somewhat extra. The tax commission up there had to decide what to do with candy bars sold in a multi-pack, versus individually. A taxpayer challenged the taxation of the multi-pack as a snack, because obviously, you wouldn’t eat the entire pack at once. And then, I even think there was the Twix case. Was a Twix bar a cookie or a candy? It made a difference in the way it was taxed!

Comment by ray — August 25, 2010 @ 2:23 p.m.
My understanding is this was instituted to help the poor buy food. So taxes on food at grocery stores were removed a while back, but taxes on restaurants and their sliced-bagel sandwiches stayed in place.

Comment by DaveG — August 25, 2010 @ 9:08 p.m.
Dave G. is very close to the reason. The sales tax on groceries was lowered in the late ’90s as a result of the Hancock Amendment. By that, I mean that the Hancock Amendment around that time was requiring the state to rebate tax money each year – with lots of Missourians getting checks for $20 or so from the government. After a year or two of this, Governor Carnahan and the legislature (at that time both houses were headed by the Democrats) finally agreed that cutting taxes was better than having to mail out hundreds of thousands of checks (most of them very small) every year. Reducing the sales tax on groceries was what they were able to agree on for a tax cut.

While I would have favored a small, across-the-board income tax cut, we could have done far worse than cutting the tax on groceries. At least everyone (or almost everyone) buys groceries. At that time (late 90’s) I was probably going grocery shopping myself about twice a year…

Comment by David Stokes — August 26, 2010 @ 1:32 p.m.
Hey, I have an idea, why don’t you guys institute revenue sharing or advocate for municipal consolidation so municipalities don’t need to fight each-other with TIF? But doesn’t that fly in the face of localism and choice?

Comment by Douglas Duckworth — August 27, 2010 @ 3:49 a.m.
Mr. Duckworth,
Rarely does one get the pleasure of being attacked for not writing something on which you have, in fact, written rather extensively. I am pleased to share with you the following articles we have published, which I trust you will largely agree with:

http://showmeinstitute.org/publication/id.12/pub_detail.asp

http://showmeinstitute.org/publication/id.115/pub_detail.asp

http://showmeinstitute.org/publication/id.126/pub_detail.asp

http://showmeinstitute.org/publication/id.207/pub_detail.asp

Comment by David Stokes — August 27, 2010 @ 10:51 a.m.

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Christine – we already have our own variation on this in Mo. Food is taxed at one rate if you buy it from a grocery store, and at another rate if it’s from McDonald’s. Why?

Food is even taxed at different rates from the same establishment based on whether you carry it out (groceries @ the grocery store) or eat it in (food/salad bar @ the grocery store). And it’s the EXACT SAME FOOD!

Pretty sure New York is the state that taxes snack foods somewhat extra. The tax commission up there had to decide what to do with candy bars sold in a multi-pack, versus individually. A taxpayer challenged the taxation of the multi-pack as a snack, because obviously, you wouldn’t eat the entire pack at once. And then, I even think there was the Twix case. Was a Twix bar a cookie or a candy? It made a difference in the way it was taxed!

Comment by ray — August 25, 2010 @ 2:23 p.m.

My understanding is this was instituted to help the poor buy food. So taxes on food at grocery stores were removed a while back, but taxes on restaurants and their sliced-bagel sandwiches stayed in place.

Comment by DaveG — August 25, 2010 @ 9:08 p.m.

Dave G. is very close to the reason. The sales tax on groceries was lowered in the late ’90s as a result of the Hancock Amendment. By that, I mean that the Hancock Amendment around that time was requiring the state to rebate tax money each year – with lots of Missourians getting checks for $20 or so from the government. After a year or two of this, Governor Carnahan and the legislature (at that time both houses were headed by the Democrats) finally agreed that cutting taxes was better than having to mail out hundreds of thousands of checks (most of them very small) every year. Reducing the sales tax on groceries was what they were able to agree on for a tax cut.

While I would have favored a small, across-the-board income tax cut, we could have done far worse than cutting the tax on groceries. At least everyone (or almost everyone) buys groceries. At that time (late 90’s) I was probably going grocery shopping myself about twice a year…

Comment by David Stokes — August 26, 2010 @ 1:32 p.m.

Hey, I have an idea, why don’t you guys institute revenue sharing or advocate for municipal consolidation so municipalities don’t need to fight each-other with TIF? But doesn’t that fly in the face of localism and choice?

Comment by Douglas Duckworth — August 27, 2010 @ 3:49 a.m.

Mr. Duckworth,
Rarely does one get the pleasure of being attacked for not writing something on which you have, in fact, written rather extensively. I am pleased to share with you the following articles we have published, which I trust you will largely agree with:

http://showmeinstitute.org/publication/id.12/pub_detail.asp

http://showmeinstitute.org/publication/id.115/pub_detail.asp

http://showmeinstitute.org/publication/id.126/pub_detail.asp

http://showmeinstitute.org/publication/id.207/pub_detail.asp

Comment by David Stokes — August 27, 2010 @ 10:51 a.m.