Wyoming Redefines Food: Don’t Overprepare Your Danishes

March 22, 2011

I bet you don’t know what food is. Donuts and cookies are food but not “prepared food” and thus aren’t taxed in Wyoming. Deli meat and bread bought at a deli counter is also not taxed, but if bought as a sandwich, it is. Soft drinks are food and are tax-free, unless they’re sold for immediate consumption. (Don’t drink one at the grocery store!) Eggs aren’t food, but cigarettes are. Frozen pizza isn’t food, but prepared pizza is.

Wyoming is one of 37 states that partially or fully exempts groceries from the sales tax. As would be expected from a tax exemption that applies to most people, grocery sales tax exemptions are politically popular, even though excluding stable and voluminous grocery sales makes sales taxes more volatile, with higher rates needed to raise the same amount of revenue.

Additionally, treating “food” differently from other items requires defining what “food” is, a project more difficult than it sounds. Short, broad definitions rope in things that politicians don’t want exempted (like alcohol or restaurant meals, for instance, that they want to keep taxing); narrow definitions sound arbitrary and increase compliance costs.

Wyoming went both routes with a new law taking effect July 1: a broad definition with numerous exceptions. Food is defined as “substances whether in liquid, concentrated, solid, frozen, dried, or dehydrated form that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value,” but not including alcohol, tobacco, or prepared foods.

What is a prepared food? Here’s how the new law defines it:

  • Food sold in a heated state or heated by the seller; or
  • Two or more food ingredients mixed or combined by the seller for sale as a single item; or
  • Food sold with eating utensils provided by the seller including plates, knives, forks, spoons, glasses, cups, napkins, or straws. A container or package used to transport the food is not an eating utensil.
  • ”Prepared food” does not include:
    • Food that is only cut, repackaged, or pasteurized by the seller;
    • Eggs, fish, meat, poultry, or foods containing raw animal foods and which are required or recommended to be cooked by the consumer to prevent food-borne illness;
    • Food sold by a seller whose proper primary North American Industry Classification System (NAICS) classification is manufacturing in sector 311, except subsector 3118 dealing with bakeries;
    • Food sold in an unheated state by weight or volume as a single item; or
    • Bakery items including bread, rolls, buns, biscuits, bagels, croissants, pastries, donuts, danishes, cakes, tortes, pies, tarts, muffins, bars, cookies, tortillas, and other bakery goods unless the item is sold as prepared food.

As someone pointed out to me, note that danishes are not prepared food “unless…sold as prepared food,” whatever that means. Do danishes require additional preparation before eating them? Until this new law was passed, food was whatever Wyoming tax authorities said it was or wasn’t, so I guess this is clearer at least?

UPDATE: A reader writes in to note that the quoted sections are definitions both of “food” and “food for domestic home consumption.” He’s right, although there’s no economic rationale for creating the latter category for separate tax treatment. The reader also accused me of trivializing legal scholarship and the intricacies of tax law. My response: “These laws are dumb and only exist to further bad tax policy. I’m trivializing that. The “intricacies” you refer to are arbitrary lines drawn for political purposes, not sober legal scholarship.”

UPDATE (2): Another reader has asked me to clarify that Wyoming’s food exemption was enacted in 2006, and that the purpose of this bill was to clarify that vending machine sales are exempt from tax, while cigarettes and alcohol are not. I did not mean to imply that Wyoming’s food exemption was new, or that the bill was a dramatic change from the status quo there. I simply want to point out how the food exemption is bad policy and leads to these arbitrary lines needing to be drawn.


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