California’s tax treatment of food and ObamaCare’s tax treatment of health insurance have something in common. Both sets of regulation are so bad that people buying the same product can be taxed or subsidized differently in ways that are almost impossible to decipher.
As Joe Eskenazi of SF Weekly explains, California taxes the same bunch of carrots differently depending on whether the “buyer is a homeless shelter (no), a racetrack (yes), an ostrich farm (no), or a zoo (maybe).”
Sold in combination, a cup of coffee and a cup of gazpacho are a taxable meal. Sold separately, they are not. Cream-filled donuts are not taxable, but a croissant sandwich is. A cold sandwich with hot gravy poured on it is taxable even if it is cooled to room temperature. So is a previously hot, but currently cold, soup.
At first, the state held that movie popcorn was heated food. The movie theaters disagreed. They claimed that the lights over the popcorn were dehumidifier lamps, not heating lamps. They hired popcorn experts to measure the internal heat of the popcorn piles. Multiple hearings and many dollars later, the California Board of Equalization ruled that the heat in the popcorn was indeed a by-product of those dehumidifier lamps. Movie popcorn became a tax exempt food.
The tax status of the zoo carrots depends upon what they are fed to. Food fed to animals ordinarily consumed by humans is exempt. A couple of decades ago, a lawyer successfully argued that California cuisine is unique because California is inhabited by people from parts of the world, places where monkeys, bison, antelopes, and other zoo animals routinely appear on the dinner table.
As is usual when people are from the government and claiming that they are here to help, the complexity of the California system has ended up harming the less fortunate that it was supposed to protect. Many low income people living in single rooms have limited options for storing and preparing food. They eat at cheap restaurants. They may also end up paying taxes on containers of milk from McDonald’s while customers of Whole Foods can purchase the same container tax free.
Hawaii has a better way. It has a food sales tax for all food. The poor are protected with a tax credit. Taxpayers do not have to pay for bureaucratic empires devoted to churning out rules addressing every nook and cranny of food production, preparation, and consumption. Businesses and the people who use their products do not have to spend fortunes tracking and protecting themselves from mind-numbing regulations. ObamaCare is complicated because its tax benefits and mandates (penalties) for the purchase of health insurance treat individuals with similar incomes very differently. Businesses are treated differently depending on their size and organizational structure.
As is the case with a food sales tax, a simple tax credit for every legal resident of the U.S. could end the regulatory mess, subsidize those who need it, and make almost everyone better off.
Still believe in bureaucracy? Here’s a handy flowchart from the SF Weekly to help you figure out whether your take-out meal is taxable in California.
HT: Coyote Blog.