Tax Analysts Blog

The Takeaway From Take-and-Bake

Posted on Oct 9, 2013

Earlier this spring, I wrote about the sales and use taxation of candy. As it turns out, 16 states do not treat candy as a grocery. Groceries are generally exempt from sales tax, so if candy is not considered a grocery, it will generally be subject to tax. Of course, what differentiates candy from groceries is not as intuitive as one might think. For example, a Hershey’s chocolate bar is candy, which Hershey’s cookies and cream bars are not.

The reason for this, according to the Streamlined Sales Tax agreement, is that a candy does “not include any preparation containing flour and shall require no refrigeration.” So go for the Twix bar or even a Kit Kat and feel good about it because neither is candy.

Definitions like this are often the brunt of jokes, but they are an integral part of the complex world of sales and use taxation. Recently, the Streamlined Sales Tax Governing Board Compliance Review and Interpretations Committee (CRIC) received a request for an interpretive opinion determining whether take-and-bake pizzas meet the definition of prepared food. If they are, they would be subject to sales tax in many jurisdictions.

Take-and-bake pizzerias sell uncooked pizzas to customers, who then cook the pizzas at home. Like the candy debate, the question of whether take-and-bake pizzas are prepared food is a matter of interpretation. Currently, states are in disagreement on the issue. For example, take-and-bake pizzas are considered prepared food in Wisconsin, despite the need for additional preparation. By contrast, Minnesota believes that because take-and-bake pizzas are only partially cooked when purchased and need to be fully cooked to be eaten, they are not ready-to-eat products at the time of sale.

But there's something bigger at stake than just a sales tax exemption: the ability of take-and-bake pizzerias to accept food stamps. In general, electronic benefit transfer (EBT) cards cannot be used for the purchase of prepared food. This means that most restaurants cannot accept EBT cards. But take-and-bake pizza is viewed as a grocery item, not prepared food. As a result, take-and-bake pizzerias qualify under the Food and Nutrition Act of 2008 to accept EBT cards.

So it is for this reason that Papa Murphy’s Take’N’Bake Pizza franchises have undertaken a letter-writing campaign to the CRIC. One letter, written by Todd Suckow, a Papa Murphy’s area supervisor in Minneapolis, sums up Papa Murphy’s plea. He writes: “I realize this decision will not be an easy one for the committee to settle on. With that said, I believe the single and most important reason that this product MUST remain untaxed is that the bulk of our daily, weekly and monthly sales come from single family and low income homes. The decision to tax this raw and unready-to-eat product will appear to those customers as just another tax grab.”

There’s a debate to be had here, but it’s not a tax one. Nonetheless, CRIC is scheduled to take up the request on October 17.

Read Comments (1)

Bob KammanOct 15, 2013

Grocery store shelves are well stocked with take-and-bake pizzas. They are
wrapped in cellophane and often placed in a box. Some are frozen, others are
just refrigerated. What's the difference between those, and what Papa Murphy

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