Empire State’s Tax On Sliced Bagels Is No Schmear Campaign

Apparently, for New York state bagel eaters, the first cut is the deepest—and it’s taxable. Last month, looking for ways to fill its coffers, the state began enforcing an old law that taxes prepared foods, including sliced bagels. Whole, unsliced bagels are tax-free, but the sales tax does apply to “sliced or prepared bagels (with cream cheese or other toppings),” according to the state’s Department of Taxation and Finance. Oh, and if the bagel is eaten in the store—sliced or unsliced–it’s taxable.

Confused? So are bagel stores and their customers. Kenneth Greene, the owner of 33 Bruegger’s Bagel franchises in the state, discovered that he was out of compliance with the bagel sales tax and had to pay a significant sum in taxes to settle with the state. Greene told The Wall Street Journal that he is trying to comply with the tax laws, but has annoyed his customers with an extra charge of about eight cents a bagel. “They felt we were nickel-and-diming them. They thought we were charging them to slice a bagel.”

It’s unclear whether the state’s crackdown will spread beyond Bruegger’s, and into the state’s smaller, mom-and-pop stores. While the controversy revolves around the question of what makes a bagel a prepared food, the law isn’t clearly defined in the tax code, and it’s fuzzy on details. For example, while sliced bagels are subject to sales tax, a sliced loaf of bread at a bakery is not, according to tax officials.

The tax department is promising to provide additional guidance in the near future.

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