You may have been reading some provocative statements in the press recently about a “grocery tax” or taxing your food. Flying almost as fast and furious as the mashed potatoes in a grade school cafeteria food fight have been press releases pointing fingers and shifting blame for a poorly executed rollout of a recent change by the legislature on a tax for “meals”.
While there was a significant partisan tone to the original objections, the hysteria it generated has not been good for the public, especially in the wake of the almost simultaneous plastic bag actions taken by the City of Norwalk and the State of Connecticut. So, what happened?
This past legislative session, which ended on June 5th, included a 1% increase in the sales tax already charged on “meals”, including beverages that are sold in connection with “meals”. The intent was to target ready prepared food, as you would typically find in a restaurant, or take out of a deli, for example.
Text of the Legislation HB 7424
(I) With respect to the sale of meals, as defined in subdivision (13) of section 12-412, sold by an eating establishment, caterer or grocery store; and spirituous, malt or vinous liquors, soft drinks, sodas or beverages such as are ordinarily dispensed at bars and soda fountains, or in connection therewith; in addition to the tax imposed under subparagraph (A) of this subdivision, at the rate of one per cent;
[(I)](J)The rate of tax imposed by this chapter shall be applicable to all retail sales upon the effective date of such rate, except that a new rate that represents an increase in the rate applicable to the sale shall not apply to any sales transaction wherein a binding sales contract without an escalator clause has been entered into prior to the effective date of the new rate and delivery is made within ninety days after the effective date of the new rate. For the purposes of payment of the tax imposed under this section, any retailer of services taxable under subdivision (37) of subsection (a) of section 12-407, who computes taxable income, for purposes of taxation under the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, on an accounting basis that recognizes only cash or other valuable consideration actually received as income and who is liable for such tax only due to the rendering of such services may make payments related to such tax for the period during which such income is received, without penalty or interest, without regard to when such service is rendered;
When the Department of Revenue Services interpreted the new legislation, it was required to use the definitions of “meals”, “retail sales”, and apply them to “eating establishment”, “caterer”, and the various drinks that are sold in connection with “meals”, as they are already defined in the statutes.
So they issued PS 2019(5), which is a policy statement that interprets the legislation to provide guidance to the various establishments that need to comply with the law. Strictly interpreted, the list of items of ready-prepared food and drink is long:
- Sandwiches, grinders, and wraps;
- Popsicles, ice cream cones, cups, sundaes, and other individual servings of frozen desserts unless sold in factory prepackaged multi-unit packs;
- Ice cream, frozen yogurt, and other frozen desserts sold in containers of less than one pint;
- Salads sold at salad bars;
- Lettuce or greens-based salads sold in containers of 8 ounces or less;
- Salads that are not greens-based (macaroni, potato, pasta, fruit, etc.) sold in containers of 8 ounces or less;
- Donuts, muffins, rolls, bagels, and pastries (5 or fewer);
- Cookies sold loose (5 or fewer when cookies are sold by quantity, or less than 8 ounces when cookies are sold by weight);
- Pies or cakes by the slice;
- Prepackaged or factory-sealed bags or packages of 5 ounces or less of chips, popcorn, kettle corn, nuts, trail mix, crackers, cookies, snack cakes, or other snack foods, unless sold in factory prepackaged multi-unit packs;
- Pizza, whole or by the slice;
- Cooked chicken sold by the piece, including buckets of chicken, and whole cooked chickens;
- Cooked ribs sold by the piece or portion and whole racks of ribs;
- Hot dogs served on a bun or heated;
- Bagels that are individually prepared;
- Soup sold in containers of 8 ounces or less, unless sold in factory prepackaged units;
- Meal replacement bars;
- All beverages provided with the sale of a taxable meal;
- Food sold at a hot buffet;
- Food that is cooked to order;
- Popcorn, kettle corn, nuts and any other snack foods that are kept warm for purchase; and
- Items such as salads, side dishes, and rolls, when sold as part of family pack meals typically including, whole chickens or buckets of chicken, when prepared and sold for immediate consumption, even when the items exceed the weight or quantity limits specified above.
- Beer, including nonalcoholic beer;
- Fruit juices, sweetened beverages, soft drinks, and soda;
- Carbonated water;
- Coffee or tea (ready to consume, hot or iced);
- Distilled alcohol such as brandy, rum, whiskey, gin, vodka, and tequila;
- Fountain drinks of any kind;
- Hard cider;
- Kombucha tea, and other naturally carbonated beverages;
- Malt liquor;
- Hot chocolate;
- Syrup-flavored crushed ice drinks; and
As applied to a supermarket, this interpretation had the effect of charging for some food for the first time, and in fact, charging more for some food than other food. Not good.
What the DRS missed was that the legislature had intended an additional 1% only on foods that were already being charged the 6.35% sales tax and that had already provided for some differentiation between foods sold in supermarkets and food sold in prepared environments like restaurants and convenience food establishments, as outline in a previous policy document PS 2002(2).
Special Rules for Supermarkets: A supermarket
means any store commonly known as a supermarket or
grocery store, excluding any store commonly known as
a convenience store. A supermarket is primarily
engaged in the retail sale of a wide variety of food
products and contains, at a minimum, the following
sections or departments: dairy; delicatessen;
condiments; bread and baked goods; canned and dry
goods; frozen foods; fresh, smoked, and prepared
meats; poultry; fresh fruits and vegetables; household
supplies; and paper goods. A specialty store that is
primarily engaged in the retail sale of one variety of
food product such as seafood, produce, candy, dairy,
bakery products, meats, or delicatessen items is not
included in the definition of supermarket.
Supermarkets are not generally sellers of meals. The
rules describing the difference between bulk sales of
food and sales of meals listed in this Policy Statement
do not apply to food items sold in supermarkets. The
items listed above as taxable meals are not taxable
when sold in supermarkets except as noted below.
The following are sales of meals by a supermarket and
are subject to sales and use taxes:
• Catering services performed by a supermarket (see
Catering Services, below);
• Sales of sandwiches, grinders, coffee, or tea
prepared in a supermarket at a delicatessen counter
or elsewhere for takeout. The sales of these items
sold anywhere in a supermarket are taxable;
• Sales of meals in areas of a supermarket where food
is intended to be consumed in the supermarket,
such as at snack bars or food courts. The meals
sold in these designated eating areas are taxable
even if taken off the premises by the purchaser.
So, after Republican law-makers blamed Democratic law-makers, and consumer advocates blamed the legislature, the buck was passed to the Governor, who instructed the DRS to go back and re-examine their guidance. Lo and behold, they found the special rules for supermarkets from the older guidance piece, and when correctly applied, the new law raises the tax from 6.35% to 7.35% on the intended product list, and groceries are treated as they were before. Read DRS letter to the Governor.
And, in case you missed it, the new tax goes into effect October 1st, so go treat yourself to a meal in your favorite restaurant before then, because the effect of the tax on their business is yet to be determined!