Washington, D.C. finally has food service taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. parity. Beginning today, D.C. food trucks will pay the same 10 percent sales taxes paid by restaurants, and no longer pay an annual flat fee of $1,500 instead.
Even though we at the Tax Foundation enjoy a food truck run from time to time, this is a good tax policy change. This new policy broadens the base, and more importantly, levels the playing field between the competitors. The incongruity in costs between 10 percent restaurant sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. and the annual flat fee of $1,500 distorted the food market and created an unfair advantage for the food trucks.
Neutrality is an important principle of sound tax policy. It enhances competition among businesses and assures that food trucks are not favored over brick and mortar restaurants. The previous difference between the two was essentially asking restaurants to subsidize their food truck competitors. But this policy change is merely a step in the right direction. The 10 percent rate is among the highest meals taxes in the country, and the broader base wasn’t offset with a lower rate, resulting in a tax hike for District taxpayers.
Also, there still is not complete sales tax parity. The general sales tax rate in D.C. is six percent, which puts the prepared food businesses at a disadvantage against other competing industries. The logic behind this is to export some of the tax burden to non-residents, non-voting commuters who may eat lunch in D.C. on work days or come for dinner on the weekends. An even better step would be for D.C. to apply the six percent rate to all sales, including restaurants and food trucks. Or, if they wanted to maintain revenue levels, they could expand the sales tax base to services. This would maintain revenues and still achieve the goal of neutrality.Share