Papa Murphy’s, based in Vancouver, has 10 locations in Clark County. The company’s take-and-bake pizza is subject to sales tax as a prepared food in Washington.
WASHINGTON — Call it the great “take ‘n’ bake” pizza sales tax dilemma.
States are grappling with whether sales taxes should be charged for pizzas or other food assembled uncooked in restaurants and sold to consumers who then cook the food elsewhere.
In most states, food that’s sold ready-to-eat is taxed; food sold in the grocery store and cooked at home is not.
That sounds as complicated as the “candy” definition states had to settle. After grappling with that one for years, the Streamlined Sales Tax Governing Board, which attempts to regularize sales taxes among states, decided that candy is defined as something without flour in it, and candylike items made with flour as an ingredient are defined as “food.” Most states tax candy or snacks, but not food.
That leads back to the pizza issue and Papa Murphy’s Take ‘n’ Bake Pizza company, based in Vancouver, which raised it. The company has stores in nearly 40 states with different policies, and wants the issue settled.
Right now, the 24 states that subscribe to the Streamlined Sales Tax Governing Board’s guidelines are split on whether to tax the pre-assembled but uncooked pizza sold in restaurants, even though a board committee decided uncooked pizza is prepared food. Washington is one of 11 states that consider take-and-bake pizza prepared food, according to Myles Vosberg, chairman of the governing board’s compliance and interpretation committee.
It may seem like a small thing. But states are seeing sales taxes decline as more purchases are made on the Internet (most are untaxed) and are looking in unusual places for taxes on services or other places for revenue. The “take ‘n bake pizza” debate could be one of many potential controversial levies on goods and services.
Michelle Shingler, senior manager for corporate communications at Papa Murphy’s in Vancouver, said the company doesn’t believe its pizzas should be taxed because it isn’t a finished product.
“People still have to go home and bake it,” she said. “Regardless, we are going to be compliant with the laws.”
Food stamps question
Another question that hangs in the balance is whether customers can use food stamps to buy the uncooked pizzas. In general, the federal program prohibits using food stamps to pay for prepared food. States already tax groceries to varying degrees, according to the Federation of Tax Administrators.
Thirty-two states, including Washington, don’t tax food purchased in supermarkets. Five states, including Oregon, and Washington, D.C., don’t have sales taxes at all.
The Tax Foundation, an anti-tax think tank, said the sales tax base on overall goods has shrunk from 60 percent of the U.S. economy in the 1960s, to 30 percent today. As a result, states are looking elsewhere for revenue, including taxing services and expanding the tax on goods.
According to the foundation, 21 states tax repair services, 19 tax landscaping, 18 tax cleaning services, six tax lobbying, three tax legal services and two tax medical services. Uncooked food for pur
chase is one of those areas states are examining. But what falls into the taxable category and what doesn’t?
“It’s a very, very, very difficult line to draw,” said Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities, a progressive think tank that studies state tax issues.
The Streamlined Sales Tax Governing Board defines prepared food as that which is in a “heated state,” contains two or more ingredients combined by the seller, or is sold with utensils. But the interpretation of that definition is slippery. About half the 24 states that subscribe to the board’s guidelines say that definition applies to take-and-bake pizza, and the others do not.
By a vote of 6-1, the Compliance Review and Interpretations Committee of the Streamlined Sales Tax Governing Board agreed that the uncooked pizza met the definition of prepared food and should be taxed.
Because there is such a split among states, the board is considering a “toggle rule,” which would allow states to do whatever they please. While it undermines the purpose of the board, it would appear to be the only option at this point. The toggle is anticipated to provide states with the option of including or excluding take-n-bake pizzas (and similar products) from the definition of prepared food. The rule will be reviewed at the May governing board meeting, said board spokesman Craig Johnson.
Cami Joner of The Columbian contributed to this story.
