Tax Credits Cure Food Sales Tax Complexity. Why Not Use Them in ObamaCare Reform?
California’s tax treatment of food and ObamaCare’s tax treatment of health insurance have something in common. Both sets of regulation are so bad that people buying the same product can be taxed or subsidized differently in ways that are almost impossible to decipher.
As Joe Eskenazi of SF Weekly explains, California taxes the same bunch of carrots differently depending on whether the “buyer is a homeless shelter (no), a racetrack (yes), an ostrich farm (no), or a zoo (maybe).”
Sold in combination, a cup of coffee and a cup of gazpacho are a taxable meal. Sold separately, they are not. Cream-filled donuts are not taxable, but a croissant sandwich is. A cold sandwich with hot gravy poured on it is taxable even if it is cooled to room temperature. So is a previously hot, but currently cold, soup.
At first, the state held that movie popcorn was heated food. The movie theaters disagreed. They claimed that the lights over the popcorn were dehumidifier lamps, not heating lamps. They hired popcorn experts to measure the internal heat of the popcorn piles. Multiple hearings and many dollars later, the California Board of Equalization ruled that the heat in the popcorn was indeed a by-product of those dehumidifier lamps. Movie popcorn became a tax exempt food.
The tax status of the zoo carrots depends upon what they are fed to. Food fed to animals ordinarily consumed by humans is exempt. A couple of decades ago, a lawyer successfully argued that California cuisine is unique because California is inhabited by people from parts of the world, places where monkeys, bison, antelopes, and other zoo animals routinely appear on the dinner table.
As is usual when people are from the government and claiming that they are here to help, the complexity of the California system has ended up harming the less fortunate that it was supposed to protect. Many low income people living in single rooms have limited options for storing and preparing food. They eat at cheap restaurants. They may also end up paying taxes on containers of milk from McDonald’s while customers of Whole Foods can purchase the same container tax free.
Hawaii has a better way. It has a food sales tax for all food. The poor are protected with a tax credit. Taxpayers do not have to pay for bureaucratic empires devoted to churning out rules addressing every nook and cranny of food production, preparation, and consumption. Businesses and the people who use their products do not have to spend fortunes tracking and protecting themselves from mind-numbing regulations. ObamaCare is complicated because its tax benefits and mandates (penalties) for the purchase of health insurance treat individuals with similar incomes very differently. Businesses are treated differently depending on their size and organizational structure.
As is the case with a food sales tax, a simple tax credit for every legal resident of the U.S. could end the regulatory mess, subsidize those who need it, and make almost everyone better off.
Still believe in bureaucracy? Here’s a handy flowchart from the SF Weekly to help you figure out whether your take-out meal is taxable in California.
HT: Coyote Blog.
That flowchart is definitely extensive. It really brings to light just how messed up and confusing the tax situation in California can get.
Completely agree! The graph showing so many bureaucratic decisions really shows how inefficient the system is by getting into every single little minute detail of every product sold. That is simply inefficient. There should just be a blanket sales tax. San Francisco, California is not doing it right!
Inefficiencies are how bureaucrats keep their jobs. Its the same rationale as stating up is down and the sky isn’t blue.
This tax system on food in California is completely discriminatory! States, like California, should consider a “one-size fits all” tax, like that in Hawaii, where there is a uniform tax across-the-board with tax credits for low-income consumers. It seems to be working there.
Or how about no tax and get the government’s greedy hands out of our food.
Or perhaps no tax on fresh foods and produce, while taxing pre-packaged junk foods.
That sounds like a very California thing to do.
Totally agree with the gist of this post. Just one nitpicky point: the paragraph on popcorn doesn’t make much sense to me. The board ruled that the dehumidifier lamps were actually heating the popcorn (contrary to what the theaters said) and so popcorn became tax exempt. This suggests that heated food is tax exempt, but the theaters disagreeing with the designation that popcorn is a heated food means they (the theaters) were fighting to keep/make the popcorn taxable. Is there a reason why the theaters would fight to keep popcorn as taxable food? Is it because they would have to pay a cost to change their cashier system? Or am I missing something?
The decision was that the hotness of the popcorn was a “by-product” of the de-humidification. In other words, it was an accident, not the objective. The objective was to keep the popcorn dry.
Of course, we all know that this is absurd. Nevertheless, the result is the popcorn was not taxable.
I remember learning years ago about the business model of movie theaters. All the profits come from popcorn and other junk food. They make no money at all from the movie ticket itself. Pretty much all that revenue goes to the distributor.
(At least that’s what I remember from the lecture. The topic was price differentiation. It was a fascinating lecture, and I think standard in undergraduate microeconomics courses. It was one of the lectures that hooked me on economics.)
Since they receive such minimal revenues from tickets, theaters have incentive to use price discrimination with their tickets. Giving discounts to students and seniors lures more moviegoers in, while being able to reap the benefits at their concessions.
The business model of movie theaters is interesting stuff.
Thanks.
The tax system in the nanny state of California is so ridiculous that the perpetrators of this silliness need to be thrown in jail and feed a strict diet of gazpacho and carrots!
Be careful now Bubba, many bureaucrats’ jobs depend on developing these convoluted and totally arbitrary tax guidelines…if the tax code were simplified and actually made sense, they would have no job. The nanny state would also have fewer methods by which to run its citizens’ lives as well.
The tax system for a meal in California is terribly flawed and complicated. When we start to tax food based on its temperature, things need to be re-evaluated.