Proposed bill to exempt free food from tax

Bill would exempt free restaurant food from sales tax

February 13, 2008

OKLAHOMA CITY – There’s no such thing as a free lunch for Mark Schneider, owner of the Chick-Fil-A restaurant in Owasso. He is required to remit sales tax on food he gives away free to customers. “I think that is bogus,” (I can agree with this) said Schneider. “It makes me not want to give out coupons. I do it to promote my business, which helps boost sales – and brings in more tax revenue for the state.” Schneider estimates he pays between $500 and $600 per month in taxes on sandwiches customers receive free by redeeming coupons. Though that may not seem like a lot, said Schneider, that’s money he would otherwise be able to spend on building his business.

Schneider has run the Owasso Chick-Fil-A – his seventh franchise venture – since March 2006. The tax rule makes sense when applied to large corporate donations, he said, but the practice is crippling to small businesses that rely on promotions to win new customers. Schneider brought his concerns to state Rep. David Derby, R-Owasso. Derby filed House Bill 3149, which would provide a tax exemption on food or beverage items costing less than $10 provided free of charge by a vendor as a promotion. The sales tax exemption would only be applied to transactions totaling $20 or less.“I just want to make it easier for restaurants to be able to promote their food products without being penalized on transactions where no money has changed hands,” said Derby. “It seems like an archaic rule.”

Many fast-food establishments that offer coupons and other free food promotions would benefit from the passage of HB 3149, he said. The bill will need some modifications before it can be passed out of the House Subcommittee on Revenue and Taxation Committee, said state Rep. Randy Terrill, R-Moore, chairman of the committee. The bill was written to also provide a sales tax exemption for gift card purchases, but Tony Mastin of the Oklahoma Tax Commission confirmed gift card purchases are handled differently than coupon redemptions. Schneider said gift cards are a way of pre-paying for food and for the tax charged on that food. Rather, his concern is focused on coupon redemptions, transactions where no sale has taken place but which are nonetheless subject to sales tax. The current wording of HB 3149 would seem to include items sold by grocers and other kinds of food and beverage vendors, which is not what Derby intended.

I've never even heard of this tax.

It's (like a lot of others) we-todd-ed.