There Is No Such Thing As a Complimentary Breakfast

April 9, 2010

There is a proposal under consideration in the Tennessee General Assembly to apply the state’s sales tax to “free” meals provided to hotel customers. The argument is that complimentary breakfasts are currently being provided tax-free.

There are a lot of complicated concepts in taxation and economics, but “free” is not one of them. In short, nothing is free. You may be familiar with the adage “there is no such thing as a free lunch,” which stems from the observation that while some things may seem free there is always a cost, even if that cost is distributed among people who do not receive the benefits.

In this specific case we might coin our own phrase: “there is no such thing as a complimentary breakfast.” The cost of providing a “complimentary” breakfast is obviously included in the cost of renting a hotel room. While that cost is spread around to all guests, some of which may not actually eat the breakfast, it is not provided for free. A correct statement would be to say that for someone who has already made the decision to rent a hotel room, there is no marginal (or additional) cost to eating that breakfast of cold cereal, yogurt, and donuts. But that does not make it free.

Since the breakfasts are part of the cost of hotel rooms, and rooms are taxed by state and local sales taxes, it follows that the breakfasts are also taxed. I would also note that not only are hotel rooms taxed under state (7%) and local (2.41% average) sales taxes in Tennessee, but they are also taxed by many local jurisdictions that levy hotel occupancy taxes, with total rates getting as high as 17.25%. Adding a tax for the meals would double-tax those meals.

Reagan Farr, commissioner of the Tennessee Department of Revenue, says that “Tennessee is an anomaly among the 50 states” because it does not tax these meals. That may be, but (to borrow another favorite parenting phrase) if every revenue department commissioner in the country jumped off a bridge, would you do it to?

Remember kids, in some cases, being an anomaly is a good thing.


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