WASHINGTON — Call it the great “take 'n' bake” pizza sales tax issue.
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.
Is that pizza considered prepared food, like that sold by pizza restaurants? Or is it a grocery item, like the frozen pizzas in supermarkets? 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 that candylike items made with flour as an ingredient are defined as “food.”
So, a Twix bar is food and a Hershey bar is not, at least according to the official tax definition.
That leads back to the pizza issue and Papa Murphy's Take 'n' Bake Pizza company, 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, including Nebraska and Iowa, are split on whether to tax the preassembled but uncooked pizza sold in restaurants, even though a board committee decided that uncooked pizza is prepared food.
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 usual places for taxes on services or other places for revenue.
Janet Guenzel, a Papa Murphy's 15-year franchise owner, said taxing her pizza would definitely hurt business. In her letter to the tax board, Guenzel said, “No Papa Murphy's Take & Bake pizza can be consumed in our stores. We have no ovens!! No tables, no chairs, no eating utensils, no napkins, etc.”
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. Guenzel said 40 percent of the business at one of her stores comes from food stamps.
It is unclear how much revenue taxing uncooked pizza would bring to states due to multiple laws governing taxation of food.
The tax 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; the others do not.
Eleven states — Arkansas, Kentucky, Michigan, New Jersey, North Carolina, Rhode Island, Tennessee, Utah, Washington, Wisconsin and West Virginia — consider take-and-bake pizza prepared food, according to Myles Vosberg, director of the North Dakota tax administration division and chairman of the governing board's compliance and interpretation committee.
Indiana, Iowa, Minnesota, Nebraska, North Dakota, Nevada, Vermont and Wyoming do not consider the pizzas as prepared food, Vosberg said. Ohio exempts all food consumed off the restaurant premises, while South Dakota and Kansas tax prepared food and groceries, he said.
Of the two remaining 24 states, Georgia's sales tax regulation appears to tax the pizza, although it does not specifically address it. Oklahoma taxes all food at 4.5 percent.