Taxed Cuts

If you run a publication that’s focused on the New York City area (or otherwise wants to connect with that audience) and you need a surefire way to get the attention of readers, here’s a trick: rank bagel places. CBS New York did it. Business Insider did it. The Village Voice did it, of course, as did Serious Eats, something called NewYork.com, GQ, New York magazine (kind of), and Buzzfeed. Gothamist did it too, and considers its list among its “best of Gothamist” content. When it comes to New York, bagels are serious business.

And they may also be taxable business — if a knife comes out.

New York, like many other states, exempts groceries from its sales tax. Walk into a bagel place, order a dozen, buy some name brand cream cheese, and go on your way — that feels like you’re grabbing some groceries, and should be left untaxed. New York agrees. You pay the posted price and the state goes empty handed.

But what about one of those bagels, cut in a half, toasted, with some store-made scallion cream cheese, some lox, lettuce, and tomato, with some iced coffee to go with it? That sounds like a great meal — but not “groceries.” And again, New York agrees: “heated or prepared meals” and/or those items “sold for on-premises consumption” are subject to the sales tax, which, in New York City at least, means you get hit with an 8.875% surcharge, if the tax collectors noticed.

For years, though, they didn’t notice or, perhaps, didn’t care. In 2010, the owner of Bruegger’s Bagels, a chain with multiple city locations, told CNN that for the first twenty years of its operation, state inspectors — despite four audits — never made an issue over the tax. But starting that year, the state’s department of taxation introduced a new factor to the tax question — one which the bagel industry’s supporters argued was driven by the state government’s desire to pick up some additional revenue. But the state didn’t only tax the obvious cases. Instead it went with a harsh but definitive rule: as the Wall Street Journal reported, if the bagel place cuts your bagels for you, the bagel becomes a meal — and is subject to sales tax. (The same is true for any bagel prepared “with cream cheese or other toppings,” again per the Journal, so if you know what a bialy is and how to eat it, don’t think you’ve found some sort of work-around. You haven’t.) The tax remains today. So if you’re in New York and buying a dozen bagels to take home, don’t ask the store to slice it for you.

However, there’s one way to avoid the tax — one which proves the superiority of bagels. Boring loaves of bread can be sliced without incurring the 8.875% tax.

Bonus Fact: According to a report by the Los Angeles Times, the NCAA — the governing body for American collegiate sports — had a problem with bagels’ ambiguity, too. The bylaw in question “permits schools to offer bagels, fruits and nuts to athletes at any time,” but one interpretation of the rule “prohibited offering spreads such as cream cheese or peanut butter with the bagels.” The reasoning, based on other reports, was that an plain bagel is a snack while one with a spread is a meal. That’s ridiculous, and thankfully, the NCAA agreed — it specifically rejected the cream-cheese-is-a-violation interpretation in 2013.

From the Archives: Thermonuclear War and Taxes: Think that the end of the world will mean no more taxes? Think again.

Related: An easy way to avoid that 8.875% bagel tax. Some manual labor required.