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Tax Break Trouble in DC

David Godow
March 16, 2011, 11:04am

It turns out that in the battle of scrappy underdog food trucks against organized and moneyed traditional restaurants, it's not just the latter that benefits from government meddling. As Nick Kasprak from the Tax Foundation pointed out yesterday, D.C. food trucks are actually not required to collect sales tax, giving them a tangible edge over their brick-and-mortar competitors. Now, a bill before the D.C. Council would strip that exemption, leveling the burden of tax compliance for all food vendors.

The Washington Post article Kasprak links suggests that the exemption might be intended to reduce the administrative burden on trucks that might operate without a register or computer system to calculate and organize tax payments. As Kasprak points out, though, adjusting one's prices for sales tax is not that difficult (taxing?). Simply take the price you want to charge for something and divide it by (1 + the tax rate). Thus, under D.C.'s 10% sales tax, what was a $2 hot dog transforms into a dog for "$1.82 plus tax." Meanwhile, there's no need for harried, register-less food truck employees to handle any more change than they normally would.

This doesn't mean cities should clamp down on gastronomical innovation - food trucks, kiosks, carts and the like should be welcomed. Still, encouraging entrepreneurship isn't the same thing as providing favorable tax treatment to new entrants. Food trucks have traditionally been on the wrong side of the political power game -- that doesn't mean they should get a leg up in the battle for market share. Encouraging fair competition between trucks and restaurants will mean lower prices and higher quality for lunchers across the District.

In D.C., the battle for equitable treatment for both parties is going to go beyond simply equalizing sales tax treatment. As WaPo columnist Mike DeBonis notes, even if the Council bill to repeal the exemption goes through, it will leave in place a burdensome $1,500 "vending fee" that truck operators have to pay the District. No doubt restaurant will point out the myriad charges and licenses they're responsible for in an effort to see that fee stick.

Though the sales tax fight may only mark the beginning of squabbling between the Restaurant Association of Metropolitan Washington and the newly-organized D.C. Food Truck Association, let's hope that the next battle in that war happens in the marketplace, not the D.C. Council. Ensuring equitable tax treatment for businesses will make that much more likely.


David Godow is Research Assistant


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