Food Truck Sales Taxes in DC
March 15, 2011
We here at the Tax Foundation love the various food trucks that occasionally set up shop near our office and sell us lunch. But we also stand firmly for the principle of tax neutrality, which says that our tax system should generally not favor certain activities over others. Food trucks in the district currently enjoy an exemption from the 10% sales tax on prepared food, thus distorting the food market and giving mobile vendors a slight competitive advantage over ordinary restaurants.
D.C. Council member Jack Evans will introduce legislation today which would end this exemption. It’s a good, base-broadening move, and, as a method of raising revenue, is preferable to raising the sales tax rate an equivalent amount. The arguments for the exemption don’t hold up. For example, the Washington Post quotes a food truck vendor arguing that the lack of a sales tax allows her to handle only bills and not coins, and that this allows her to serve her custumors more quickly. But there’s nothing stopping vendors from setting their advertised prices such that the total price with tax comes out to a whole number. Simply divide the price you want to charge by a factor of 1+r (where r is the sales tax rate, in this case, 10% or 0.1) and advertise that price. If you want to charge exactly $2.00 for a hot dog, divide $2.00 by 1.1 and advertise the price as $1.82 plus tax. (Just be careful not to advertise “$2.00, tax included” because you’ll be breaking the law.) Furthermore, the transaction time argument is not a reason to give food trucks preferential treatment—ordinary restaurants share the same concerns.
D.C.’s 10% tax on sales of prepared foods is, to be sure, bad tax policy. D.C. has a general sales tax rate of 6%, and there’s no reason to require food vendors to pay a higher rate. But the problem is made even worse by imposing the higher rate selectively on certain types of food sales, while exempting others completely. Asking brick and mortar restaurants to pay a high sales tax not imposed on food trucks, is, in essence, asking them to subsidize the cost of government for their direct competitors. Ideally, D.C.’s general sales tax rate of 6% would apply to all sales, food trucks and ordinary restaurants included.