City informs Sugar Shack of bizarre doughnut tax policy

If you order between one and five doughnuts, the City considers that a meal and will tax you on it.

September 17, 2013; 7:15 AM • by Nathan Cushing

Just one doughnut stands in the way of you being charged a six percent meals tax.

That’s what Sugar Shack Donuts owner Ian Kelley learned two weeks ago when he visited City Hall. A tax auditor informed him that Sugar Shack needs to charge customers the six percent meals tax when they order five or fewer doughnuts. Orders of six of more are spared the charge.

“When you sell somebody one to five doughnuts, the understanding is that they’re going to eat it immediately,” Kelley said, repeating what he was told at City Hall. Because it was assumed that customers would eat those doughnuts as a single serving, Sugar Shack needed to charge the corresponding meals tax. Customers who ordered six or more doughnuts were assumed to not eat them as a single serving, thereby avoiding the tax.

But why is six the cut-off?

“In order to ensure consistency…a number had to be developed,” said Kevin Ervin, Operations Manager at the City’s Department of Finance. “The number six is the magic number, if you will.” He said finance management picked the number back in the 1990s, and it’s been on the books since.

As anyone who’s eaten at Sugar Shack before will tell you, eating five doughnuts as a single serving is a gastric undertaking. But the City’s specifications gets even more bizarre for Sugar Shack.

In addition to charging the meals tax on orders of five doughnuts or fewer, the same also applies to Sugar Shack’s fritters, even though one fritter can be the size of (at least) three doughnuts. So, according to City tax code, an order of five fritters (the equivalent of 15 delicious doughnuts) is a single serving.

“Six is not the perfect number,” Ervin admits, but he said coming up with one is nearly impossible. The reason? The tax code doesn’t make special dispensation for doughnuts: the one-to-five/six-or-more rule applies to cookies, chocolate, and other pastries. “What definitions do we apply?” Ervin rhetorically asked. “Do we go to every bakery in town” and size up each menu item?

Instead, the City’s finance management made the decision in the 1990s that six, while not a perfect number, was a fair one that would cover a variety of confections. For instance, five quarter-sized chocolate treats could easily be consumed in one sitting. And while Sugar Shack’s fritters are about the size of your head, the fritters at another shop could be much smaller. The City’s definition of a sweet-tooth meal provides consistency for business owners.

“We have to be careful when we administer the tax code that we are not putting anyone at an unfair advantage, or an unfair disadvantage,” Ervin said. He added that he hasn’t received or heard of complaints about the doughnut portions in the tax code until I requested the interview. “I’m sure this will be on the table next time around as something I will bring up” for review, he said.

In the meantime, Ian Kelley said that Sugar Shack informs customers who order five doughnuts about the tax rule. If they add an extra doughnut to their order, they not only avoid paying the meals tax, but will earn a five percent discount, which Sugar Shack offers to all orders of a half-dozen items.

photo by Anne-Aurelia Lewis