Because it’s Friday!
What constitutes prepared food can be complicated and confusing. In 2019, the New York State Department of Taxation of Finance issued a bulletin announcing that sandwiches are subject to sales tax. The bulletin does not define what a sandwich is but gives a laundry list of examples. To my knowledge, the agency has not ruled on whether KFC’s Double Down (two slices of bacon and two slices of cheese with two fried chicken filets serving as the buns) would be considered a sandwich.
This has led to New York’s infamous “Bagel Tax.” A whole bagel can be purchased tax free. But if it is sliced, then it would be considered a sandwich and subject to the sales tax. This might not mean much to those who eat out occasionally. But for people who need a daily garlic bagel with cream cheese, the incremental sales tax can add up.
Last week, the New York chain H&H Bagels announced that it has found a way to get around New York’s sandwich tax. It would serve a whole bagel with the cream cheese stuffed inside the bagel. This would avoid slicing the bagel so that it would not be considered a sandwich. The price of the tax-free bagel is $1.90. Considering that its plain cream cheese bagel sells for $4.90, that is quite the tax-free bargain. But unfortunately, this was a limited time offer which ended on April 18, which is the deadline to file tax returns (unless an extension is filed).
I am skeptical as to whether their cream cheese-stuffed bagel is actually tax free. According to the New York tax bulletin, a taxable sandwich includes “[B]agel sandwiches (served with butter or with spreads, or otherwise as a sandwich).” Also, in New York, heated or prepared meals and foods sold for on-premises consumption are also subject to sales tax. Would a New York tax auditor consider the cream cheese-stuffed bagel to be a sandwich or a prepared meal which can be subject to sales tax? We will probably never know since the stuffed bagel was only available for a limited time and probably accounted for a small amount of bagel sales.
Because of the confusion as to what constitutes heated or prepared food that could be subject to sales tax, many states, like New York, give extensive examples as to what types of foods are exempt and what is taxable.
