Did you know that in most states you're required to collect and pay to your local government sales tax on certain or all of the products you sell through your vending machines? That's even if you own just one machine for, let's say, your auto repair shop. It's true, and what's more, you may be the only business type in your state that is required to collect sales tax on food, candy and soda sales. Why is this, and what can you do to change it?
Assume you walk into a grocery store or gas station and buy a bag of chips. You pay the listed price of the item and leave. You walk past a snack vending machine sitting outside the door on your way out; one serviced by a local vendor. You decide to buy the same bag of chips out of the vending machine, but guess what? You pay sales tax on that purchase. That's the law in Colorado. Many other states have similar laws, but for the purpose of demonstrating our point, we'll deal only with Colorado law.
In Colorado, there are three tax-collecting entities. State, county and city. Each has their own "unique" method of collecting sales tax, and their own rates for all their own categories. In Colorado, the state does not tax "food" in stores or vending machines, but does tax carbonated sugar beverages, and some candy bars with certain ingredients.
The common denominator in determining which candy bars are taxed is sugar. The county does not tax vending food, soda or candy in vending machines. The state collects all sales taxes for the county, as the county does not have the infrastructure to collect it independently.
Many counties and cities operate like that. Our city, Grand Junction, is what's called a "home rule city." This means that the city levies and collects its taxes and sales taxes by itself. It is not required to institute any tax the state levies, unless specifically required to do so in the language of the state law.
For a regular retail food store, it is relatively simple to collect whatever sales tax is required on each individual item. As most vendors know, it is not possible to "collect" sales tax at the point of sale on any product sold in their vending machines. Therefore, time-consuming or costly methods are used instead to track sales that would be subject to sales tax liability.
In the end, unless a vendor is able to charge large margins above cost on his or her products, the cost of the sales tax due each year comes to a great extent out of the vendor's pocket, and not out of the end user's pocket. Another potential obstacle for vendors when collecting sales tax is the fact that their business may operate in many more than three jurisdictions that levy sales tax on vending food. I spoke with an operator in Denver at one point who had to "collect" and report sales tax in 28 different jurisdictions quarterly.
Operators who are aware of the requirement to pay sales tax on their products hate the tax, and for good reason. Sales tax on food sold in vending machines is unfair to vending operators because grocery stores and convenience stores are generally not subject to it, and local government is usually able to get away with instituting it like that.
This is because there are not enough organized efforts or groups in the vending community to fight implementation, and they know it. Vending is viewed as a "niche" money market, by just about everyone, especially legislators. Many crafty methods for getting a "piece of the pie" out of vending have been created by cities and states across the nation.
In Colorado, we eliminated state sales taxes on any vending food or drink in the early 2000s, thanks to the perseverance of Lou and George Langdon of G&S Vending in Denver and the Colorado Vending Council. They made the argument that sales taxes levied on vending operators unfairly discriminated against them solely because of the form of device they used to sell their product.
The state argued that the food in vending machines should be taxed because it was not food used for home consumption. That argument is not logical, and assumes a lot that could be false. What if you buy a soda at work or from a machine on the street to drink at home? What if you buy a snack from a machine during the day that you know your kid might like to have at home? Or, to illustrate even better, what if you buy a case of soda and a pack of snacks from your local grocery store to consume in your car, or at work, or on a long drive?
We all know that, generally speaking, food bought from a store will more often than not be consumed at home, while the same food bought from a vending machine will probably be consumed elsewhere. That is not the relevant point, though. The point is that no government entity can possibly know where you intend to consume a food or drink item.
That is why food and drinks have traditionally been tax exempt. They are a necessity for life, and government has no business taxing the food you put in your mouth. As governments are increasingly turning into supposedly "all knowing" and "all caring" institutions, they become more willing to infringe on areas of your life they previously had been barred from, because they feel they understand your life and your behavior better than you do. In almost all cases, they end up being wrong.
This is the mentality that backs these tax laws, and these are the mentalities that you will have to discredit and expose when fighting these sales taxes. In the end, we won in Colorado, for a while...
In 2011, the liberal-leaning legislature in Colorado decided to tax "sugar." They call it a tax on soda and candy, using the defense that soda and candy aren't food items "sold for home consumption."
Food sold for home consumption is a term under which most municipalities and states categorize any food or drink that they choose to exempt from any form of tax collection. The idea was that a tax on sugar-filled items commonly consumed by individuals, i.e., soda and candy, would help discourage bad eating habits.
Besides the absolute insanity of the idea of a 2.9% soda tax discouraging bad-eating habits, government does not have the power constitutionally to levy such a tax. Taxes as a fundamental constitutional principle are not to be used to coerce the actions of the citizenry into a course desired by the state. While it would take a good constitutional lawyer to argue this case in such a way as to take down a state law in court, it is far easier for even the individual vending operator to fight any sales tax that they alone are subject to, and grocery stores are excluded from.
Recently, the vendors in our area on the western slope of Colorado joined together and petitioned the City Council of Grand Junction to drop the sales tax on vended food, and on soda and candy sales. Currently, the city taxes all vended food and drink sales, but does not tax food or drink sales made in grocery and convenience stores.
The council is agreeing to our request and is on the path to dropping the tax, but the path to this point has been difficult. We live in a conservative county, but it's always hard to get government to give up a tax, no matter where you live.
The key to success is unity and organization ahead of the attempt among the vendors in the jurisdiction in which you want to challenge the tax. Get other groups like the Chamber of Commerce, a state vending organization, the National Automatic Merchandising Association, or even other local business on board ahead of time.
We have found here that other businesses are very eager to get on board with us on this issue, because they recognize the tax as being unfair, and they realize the precedent that such a tax could create when new taxes for businesses comes up in the future.
It is important that we as vendors remain vigilant in protecting our interests and our ability to do business free from intrusions by government. With mounting budget deficits and unmanageable debt, many municipalities are actively looking for new avenues for raising revenue.
We need to be united in our message of "hands off the vending industry" when it comes to sales tax. We are a legitimate retail food industry, and we should be allowed to enjoy the same exemptions all other food retailers receive.
Wheter or not we succeed in our efforts, our elected representatives need to hear from us on this issue, and we need to push the exemption for all food and beverages from sales tax in all industries. If we the people don't draw the line on what in our lives is not taxable at something as basic as items on our dinner plates, then what in our lives can't be taxed?
ALDEN SAVOCA founded Healthy 4 U Vending in 2009. He sold his vending route in 2012 and launched Vendors Tech, a repair, refurbishing and parts center for vending machines and payment systems. The Grand Junction, CO, company has a repair service market that stretches into Utah and southern Colorado and east to Denver. Vendors Tech repairs validators and changers for companies nationwide, and its refurbished vending machines and currency equipment are bought by companies in all 50 states and several foreign countries.