Busted: The Starbucks Muffin Tax

September 22, 2005

As in most places, food is tax-exempt in Washington State. So why is Seattle’s most ubiquitous coffee house charging sales tax on tax-free muffins?

Apparently, because they’re confused about state law. And in a hilarious twist, state tax collectors have turned a blind eye to the practice since it boosts tax collections. From the Seattle Post-Intelligencer:

Kathy Batey of Seattle wants to know why she is charged sales tax at Starbucks on muffins that were not prepared by the coffee shop, but can buy muffins from stores, other coffeehouses and bakeries tax-free…

The short answer is that Starbucks, Seattle’s Best and Tully’s are charging customers sales tax that consumers don’t have to pay… In Washington, consumers are not required to pay sales tax on food items, unless the food is prepared by the establishment selling it, or unless the food is served. Bakery goods always have been exempt from sales tax…

When the Seattle Post-Intelligencer tested the system at large chain coffeehouses across the city, we were charged the 9.3 percent Seattle sales tax each time, even when the purchase was only for tax-exempt food, such as a bottle of juice and a cookie…

Officials from Starbucks Coffee Co. said that … they are supposed to tax all of their sales… Gowrylow [spokesman for the state Department of Revenue] said that assessment is incorrect.

The state, however, is not against businesses turning over more tax than is necessary. If a business does not want to separate its taxable and non-taxable items, like grocery stores do, it doesn’t have to…

Consumers don’t have much recourse, other than to express their displeasure with the practice and to take their business elsewhere.

No word on whether the company plans to take on additional government functions in addition to levying its own taxes. Read the full piece here.


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