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Why some restaurants charge tax on takeout food while others don't

Big pigs get big breaks

Hey, Answer Stud: Something that really ticks me off is the tax policy on restaurant fast-food locations. At some locations I will take food to go and notice that I am not taxed. Others, I will eat in and get taxed or take the order to go and STILL get taxed. What is the problem here? What are the rules? — Lee, El Cajon

Dear Matthew Alice: Why do some restaurants charge tax on takeout food while others do not? One restaurant manager told me that restaurants that sell more than a certain percentage in-house must charge tax while the others don’t have to. Is such a complicated rule right, or are we just being ripped off? — Overtaxed in La Jolla

I’m amazed that you’re amazed that tax laws might be complicated. But I’ll offer a simple solution. Just remember that we are not taxed for the food, the restaurants are. They owe sales tax to the state according to their particular contracts with the Board of Equalization. The state couldn’t care less whether the hash-slingers inform us of their onerous fiscal responsibilities just as long as they ultimately pay up. So in some establishments, the tax might be included in the menu price and you’ll never know it’s an element of your cost, like utilities, decor, and disappearing waiters. But usually a restaurant will whap the tax figure onto your tab as a separate item in order to keep their menu prices lower and so they have a record of the tax they owe. The fact that they owe it but we pay it is just the American way.

But if you insist on knowing more, we’ll have to check out the six-page Regulation 1603 of the state sales and use tax. “Hot prepared food” is taxable, whether it’s served on a plate at your table or stuffed in a bag and shoved through a window. “Hot” is defined as something greater than room temp. (And you can’t fudge it by letting a steak sit around for half an hour before it’s served.) “Prepared” can mean cooked, warmed up, a cold thing covered in hot gravy, just about any heating-up activity. If the menu offers a package price for the Thursday Beefy Blow-Out — a parlay of burger, three-bean salad, chips, tapioca, and Tang — the whole meal is taxable, not just the hot stuff. One doughnut is taxable; a box of two dozen is not. An ice cream cone is taxable, a gallon isn’t. The equalization board apparently assumes that no one plans to immediately eat all the doughnuts or ice cream. So bulk quantities for off-premises consumption are not taxable. Big pigs get big breaks.

But then we come to the 80-80 rule, which throws a large pickle into the regulatory souffle. If at least 80 percent of a business’s gross receipts are from the sale of food, and 80 percent of that food is taxable, then that business’s cold foods served in portions suitable for immediate consumption are taxable. Say Lola’s Drive-Thru Latkes and Shoes makes 80 percent of its money from food, and 80 percent of that food is taxable. One day you have a yen for a Coke and a chocolate-dipped frozen banana. Under the 80-80 rule, Lola will owe tax on your cold order. If Lola sells 81 percent shoes or nontaxable foods, your takeout cold order is not taxable.

Airline food? Not taxable. The “breakfast” in “bed and breakfast”? Taxable. School food? Not taxable. Stadium, arena food? Taxable. State park food? Not taxable. Catered food? Taxable. Religious food? Not taxable. Grandma Alice’s Church of Perpetual Gumbo... Have we found a loophole?

There’s more, but I’ll spare you. Except to explain why California’s tax gatherers work for the board of “equalization.” What’s equal about income tax? Back in the 1800s, the laws were such that rural towns were paying way more in taxes than they required in services. Big cities had a pretty easy skate. The tax-burdened raised such a stink that the governor established a commission to equalize the load: the State of California Board of Equalization.

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Hey, Answer Stud: Something that really ticks me off is the tax policy on restaurant fast-food locations. At some locations I will take food to go and notice that I am not taxed. Others, I will eat in and get taxed or take the order to go and STILL get taxed. What is the problem here? What are the rules? — Lee, El Cajon

Dear Matthew Alice: Why do some restaurants charge tax on takeout food while others do not? One restaurant manager told me that restaurants that sell more than a certain percentage in-house must charge tax while the others don’t have to. Is such a complicated rule right, or are we just being ripped off? — Overtaxed in La Jolla

I’m amazed that you’re amazed that tax laws might be complicated. But I’ll offer a simple solution. Just remember that we are not taxed for the food, the restaurants are. They owe sales tax to the state according to their particular contracts with the Board of Equalization. The state couldn’t care less whether the hash-slingers inform us of their onerous fiscal responsibilities just as long as they ultimately pay up. So in some establishments, the tax might be included in the menu price and you’ll never know it’s an element of your cost, like utilities, decor, and disappearing waiters. But usually a restaurant will whap the tax figure onto your tab as a separate item in order to keep their menu prices lower and so they have a record of the tax they owe. The fact that they owe it but we pay it is just the American way.

But if you insist on knowing more, we’ll have to check out the six-page Regulation 1603 of the state sales and use tax. “Hot prepared food” is taxable, whether it’s served on a plate at your table or stuffed in a bag and shoved through a window. “Hot” is defined as something greater than room temp. (And you can’t fudge it by letting a steak sit around for half an hour before it’s served.) “Prepared” can mean cooked, warmed up, a cold thing covered in hot gravy, just about any heating-up activity. If the menu offers a package price for the Thursday Beefy Blow-Out — a parlay of burger, three-bean salad, chips, tapioca, and Tang — the whole meal is taxable, not just the hot stuff. One doughnut is taxable; a box of two dozen is not. An ice cream cone is taxable, a gallon isn’t. The equalization board apparently assumes that no one plans to immediately eat all the doughnuts or ice cream. So bulk quantities for off-premises consumption are not taxable. Big pigs get big breaks.

But then we come to the 80-80 rule, which throws a large pickle into the regulatory souffle. If at least 80 percent of a business’s gross receipts are from the sale of food, and 80 percent of that food is taxable, then that business’s cold foods served in portions suitable for immediate consumption are taxable. Say Lola’s Drive-Thru Latkes and Shoes makes 80 percent of its money from food, and 80 percent of that food is taxable. One day you have a yen for a Coke and a chocolate-dipped frozen banana. Under the 80-80 rule, Lola will owe tax on your cold order. If Lola sells 81 percent shoes or nontaxable foods, your takeout cold order is not taxable.

Airline food? Not taxable. The “breakfast” in “bed and breakfast”? Taxable. School food? Not taxable. Stadium, arena food? Taxable. State park food? Not taxable. Catered food? Taxable. Religious food? Not taxable. Grandma Alice’s Church of Perpetual Gumbo... Have we found a loophole?

There’s more, but I’ll spare you. Except to explain why California’s tax gatherers work for the board of “equalization.” What’s equal about income tax? Back in the 1800s, the laws were such that rural towns were paying way more in taxes than they required in services. Big cities had a pretty easy skate. The tax-burdened raised such a stink that the governor established a commission to equalize the load: the State of California Board of Equalization.

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