Until recently, residents of Albany, New York, have not had to pay tax on the purchase of their morning bagels. At least for one major bagel chain – Bruegger’s – that’s all over. Why? Because the city of Albany needs cash and they are going to get it one bagel at a time.
Here’s the sales tax law according to the state’s Department of Taxation and Finance: Whole bagels are not subject to sales tax, unless they are eaten in the store where they are purchased. Bagels eaten in the store are taxable even if there has been no preparation at all, including slicing. But “sliced or prepared bagels (with cream cheese or other toppings)” are taxable. Sliced bread sold in a bakery, however, is not taxable
The tax is not new. It arises from a little-known clause in the city’s sales tax code, and adds approximately eight cents per bagel.
When auditors examined the books of Kenneth Greene, they slapped him with what he called a significant sum for taxes they say he should’ve been collecting, according to The Wall Street Journal. Greene owns 33 Bruegger’s Bagels stores. With no other choice, he added the tax to the cost of his bagels. His customers were not pleased.
"They felt we were nickel-and-diming them. They thought we were charging them to slice a bagel," he told reporters. Customers thought he was trying to add to his profits at their expense, at a time when the economy is weak.
To fend off the criticism, Green posted signs near the cash registers explaining the increase. The signs read: New York State is requiring that all sliced bagels and all food eaten on our premises be taxed. We apologize for this change and share in your frustration on this additional tax.
At this point, it is not clear if the crackdown will affect bagel stores other than Bruegger’s, according to The Wall Street Journal. The focus on collecting more sales tax began when New York State officials told auditors in Albany they needed to make up for a budget deficit by amplifying their audit and compliance efforts. That means obscure laws that are based on minor distinctions, like the sliced vs. unsliced bagel, might be dusted off and enforced in the future and retroactively.
New York State passed its budget earlier this month with a deficit of $9.2 billion. Included in the budget are an increase in the cigarette tax (adding $1.60 in state taxes, raising the price to $11 per pack, according to The Huffington Post), an elimination of the sales tax exemption on clothes and shoes that cost under $110, and a 50 percent reduction in the charitable deduction that New Yorkers making $10 million per year can take. The state also stepped-up efforts to collect those taxes that already are on the books but have rarely, if ever, been enforced.
Think this is a peculiar and isolated incident only in New York? Not so. Katherine Mangu-Ward, editor of Reason magazine says lines are being drawn between “necessary foodstuffs and taxable luxury items,” and anything that can somehow, some way be considered a luxury item is ripe for the taxing. Mangu-Ward pointed that in Colorado, Washington, and certain other states, a Kit Kat candy bar is tax exempt, while a Hershey bar is taxable. Why? The Kit Kat contains some flour. Seriously.