taxes on prepared meals
Sales taxes are not always uniformly applied to all goods. Some states impose a “meals tax”, which is a type of additional sales tax applied only to prepared foods served in restaurants and similar establishments. According to a 2012 survey by the nonprofit Tax Foundation, localities in 15 states and the District of Columbia charge some form of meals tax. Among the 50 largest U.S. cities, Virignia Beach, Virginia, had the highest taxes on prepared meals at 5.5%. This was in addition to Virginia’s then-statewide sales tax of 5%, for a combined rate of 10.5%. Only Minneapolis reported a higher combined rate at 10.775%. (Virginia Beach’s combined rate is actually higher now – 10.8% – as Virginia subsequently raised its base sales tax to 5.3%.)
Teachers and police v. small business owners
Virginia Beach is not the only Virginia city struggling with high taxes on prepared meals. In Charlottesville, a small city of about 45,000 residents and home to the University of Virginia, the combined sales-and-meals tax rate is currently 9.3%. Last month city officials proposed adding another 1% to the meals tax, bringing the rate to 10.3%.
Charlottesville Mayor Satyendra Huja said the additional 1% would add $2.1 million to the city’s coffers, providing additional funds for the city’s schools and police without increasing property tax rates. City Council member Kristin Szakos added the meals tax “is not a tax on necessities, it’s a luxury tax.”
Several restaurant owners have circulated a petition in opposition to the proposed 1% increase, which the City Council is expected to vote on in mid-April. The owners argue their customers have been unfairly singled out and asked to pay nearly double the general sales tax rate. Restaurants must also pay a processing fee on each credit card transaction based on the entire amount of the sale, including any meals tax. This can have a significant impact on the already thin profit margins of smaller, independently owned restaurants.
Is that chicken a “meal”?
Although meals tax enthusiasts like Charlottesville’s Szakos claim it is a “luxury tax,” the Tax Foundation’s 2012 report argued otherwise. The tax applies just as much to cheap takeout as it does fine dining. As the Foundation noted, “One could say that it is a tax on individuals with less flexible schedules or who do not like to cook – rich or poor.”
The meals tax also creates some odd legal hair-splitting over what exactly constitutes a “meal.” Virginia law says the tax applies to any “prepared food (including, without limitation, sandwiches, salad bar items sold from a salad bar, and prepackaged single-serving salads consisting primarily of an assortment of vegetables) and beverages … offered or held out for sale by a restaurant or caterer for the purpose of being consumed by an individual or group of individuals at one time to satisfy the appetite.” This definition excludes most foods sold at grocery stores, although it does apply to certain types of prepared foods sold within such stores. For example, if you buy an already cooked rotisserie chicken from a grocery store deli counter, that item is subject to the meals tax. But frozen chicken you have to reheat is not.
S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info
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