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.

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

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Nathan Cushing

Nathan Cushing is a writer, journalist, and RVANews Editor.

Notice: Comments that are not conducive to an interesting and thoughtful conversation may be removed at the editor’s discretion.

  1. Every time I hear crap like this with the city, I think it can’t get any worse. Then I hear more crap like this. One has to wonder why anyone in their right mind would open any type of business in this thieving city.

  2. anonymous on said:

    “To help pay for CenterStage, Richmond City Council in 2003 hiked the city’s tax on sales of prepared-food items — the so-called “meals tax” — from 5 percent to 6 percent, an increase that was supposed to automatically revert back to 5 percent in 2006.”

    By the way, if you like that, the Planning Commission just gave one of Center Stage’s leaders permission to create yet another publicly subsidized venue-

    How do you like them donuts?

  3. Morgan on said:

    What the hell is this??? This is the second time a new business has been informed of some tax law after opening.

    Seems like meal tax needs to be applied to a certain use/zoning, not if something’s going to be eaten right away…

    So I guess the next time I get take out I shouldn’t be charged the meal tax? How do they know I won’t eat it right away?

  4. This is actually a pretty good deal. They were already collecting tax on all sales. Now Sugar Shack is able to pass on an extra discount to its customers ordering six or more donuts.

  5. Great reporting. Ridiculous logic applied and I can’t say that I agree with the city on this or the Hardywood meals tax decisions. Businesses need to be encouraged.

  6. this is a joke.
    Crazy that anybody opens a business in the city limits.

  7. Ian Kelley on said:

    Just to clarify, the city didn’t notify me with this change after we opened. I searched for answers as to why we weren’t allowed tables and chairs (like a restaurant) but had to pay a restaurant tax. The man who helped me at City Hall was MORE than helpful and pleasant, and in no way was cracking a whip or being harsh. I agree it’s a stupid rule, but we will follow it like everyone else in the city until someone has the time and power to address it. (cough cough Charles Samuels). :)

  8. cities larger than ours and smaller than ours can get by without ridiculous tax loopholes and stupid city government intervention. you don’t hear of this in new york city or in fresno, ca. why do we have to deal with this crap here?

    yet another reason this city is doomed to never expand.

  9. “Customers who ordered six or more doughnuts were assumed to not eat them as a single serving…”

    That sounds like a challenge I’m willing to tackle.

  10. actually on said:

    New York city has a 9% meals tax

  11. Curtis on said:

    DAVID 2016!

  12. A weight has been lifted! I can now eat doughnuts as a meal. See you tomorrow!

  13. Elliott on said:

    This is like when we started calling pizza a vegetable. I think I’ll have a balanced meal for dinner tonight!

  14. David, I’m with you. I can easily down six Krispy Kreme donuts!

  15. Shitty meal tax sucks ass! Go grocery shopping and pay extra tax if you buy a prepared sandwich or sushi, no matter when you plan on eating it. Our illustrious shitty council said, when referring to the supposed repeal of the center stage tax, “we can’t afford to get rid of such a revenue stream”. Shitty Hall doesn’t make opening and running a business easy.

  16. Richard on said:

    Because of a perverse donut rule, 2013 was the year when meals tax revenue mysteriously declined, and the obesity rate in RVA exploded!

  17. Former business owner on said:

    For more than ten years I returned city meals tax coupon books because they did not apply to my bottle shop. I was told I had to charge meals tax on all refrigerated items. I countered–some are unpasteurized & require refrigeration, and many are 750ml–clearly not single serving. Also, by law you can’t drink beer in my shop, on the sidewalk, or in your car, and by the time you get home that no longer constitutes “immediate consumption.” Still fighting…

  18. Katie B on said:

    If I ever eat five donuts right away, someone smack me.

  19. brittnay on said:

    But the doughnuts are just soooo amazing!

  20. DB, I agree 100%!

  21. Michelle on said:

    I live alone, so I buy one donut as a treat occasionally. I do not eat it until after a meal — like a dessert. This tax is ridiculous! Encouraging people to buy more than they need, which leads to eating more than one should at any given time — real healthy. And, to tax Sugar Shack as a restaurant when it is not allowed to have tables and chairs, like a restaurant is even worse.

  22. Liberty666 on said:

    I thought liberals were all for higher taxes, all happy about it.

  23. huh? Sounds like you’ve been watching too much Fox. @liberty666

  24. Angela on said:

    @Ian Kelly – Wait a sec, so you guys pay a restaurant tax but cannot have tables & chairs? Yet do sell “meals”, which get a meals tax? Seems like if you pay restaurant tax, we should pay “meals” tax on our small donut orders, but at the same time it would be nice to have a table or two to stand around/put our things on while we enjoy our donuts yet this is not allowed? Have I got this right? I was wondering why there weren’t a few bar-stool height tables for us to enjoy our “meals”…….

  25. The City is overreaching with the Meals Tax. It was originally for restaurants. A Finance Director in the 90’s felt it could be extending to prepared foods because of salad bars popping up I grocery stores etc…. I have fought them over this back then and even then they could not answer what should and what should not be included. It is arbitrary and badly written and enforced. Everyday you worry am I doing this right? Will they seize our bank account and cause us to bounce checks all over the place? Someone in the City Council needs to get this cleared up and while they are at it give us the 1% back. Fat chance.

  26. Julie Blansett on said:

    this sux. and another sucky thing re: Sugar Shack. they aren’t allowed to purchase the abandoned lot next door, for parking. how absurd can you get? i’m organizing & i’m going to try myself, to fix that little problem. head up, Charles Samuels, Julie is on the warpath.

  27. Kimber on said:

    This is the MOST asinine thing I have read about our City I’ve read in a long time. Way to make it difficult for small businesses. Geesh

  28. ShackLover on said:

    I laughed out loud when I read this. So I can go to Sugar Shack, buy two dozen donuts, bring to the office, invite my colleagues to consume them immediately and avoid the meals tax, but the individual who walks in and buys 2 is taxed? I wonder how much we pay the donut counters at City Hall to develop and monitor these schemes.

  29. Ben Lombardi on said:

    This is ridiculous. What nonsense! One to five doughnuts is not a meal. I do patronize the businesses and restaurants in the city, but this nonsense is the reason why I would live or operate my business there. When I eat a doughnut (or two), it is usually a snack. With that said, I wouldn’t be the least bit surprised if someone is going to table a snack tax. For shame!

  30. Sugar Shack was not blindsided by this. They were collecting the tax from day one. The only news in this story is that the City has dropped the meals tax for 6 or more donuts, in effect taking 6 percent off the top of your bill. Taxing prepared foods has always been a gray area. With the vast increase (especially in grocery stores) of nontraditional outlets selling prepared foods, someone had to draw the line somewhere. The Federal government does the same thing with food stamps. You’d think someone would be glad the City is giving you a break on bulk purchases, but then what would you do with all your pent up outrage.

  31. The most disturbing thing is how the city staff recognizes how off this potentially is, yet enforces it anyways. My question is, why is our city acting like it has a profit motive?

  32. This is precisely why I do not eat out in Richmond. They are whores for taxes. If Henrico and Chesterfield follow suit, I will add them to my list. Goochland and Hanover have some great restaurants

  33. Only in Detroit…hey, wait a minute, this is Richmond! I wonder what the City Government does about folks who sell donut holes??

  34. Has anyone ever challenged the city’s meals tax in court? Seems like it’s vague and arbitrarily enforced, and possibly subject to being overturned by a court.

  35. Meals taxes generate millions of dollars in tax money, a large portion of which is paid by non-City residents. This money goes into the general fund. If you eliminate the meals tax you are going to have to bridge that gap or come up with another source of revenue, probably paid only by City residents.

  36. While you are correct Paul, my rebuttal would be to cut down on wasteful spending so that there would be no gap to fill in the first place. I do realize that is more complicated than i am alluding to, but the fact remains. The goal of our city gov’t should be to decrease the expense of us living here while upkeeping the very basic essentials, like infrastructure, law enforcement, and schools. Our gov’t has gotten so big, complicated, and complex, that it can no longer run itself efficiently, and the citizens suffer through it with higher taxes, utility costs, and penalties. If the city is scrambling to “fill gaps” then that’s proof someone fucked up the planning and budgeting.

  37. It’s just a tax like any other except this is a progressive tax that falls heavier on people with disposable incomes, suburbanites working in the city, tourists and conventioneers. If you want to cut taxes, would it be better to cut the meal’s tax or lower property taxes?

  38. You raise a good point Paul. I would rather have the property tax cut. Thanks for enhancing my perspective(not being sarcastic, i see where you’re coming from and agree).

  39. Krispy Kreme sells doughnuts in retail outlets by a minimum of six pieces. I think its safe to say Krispy’s interests were at play when writing this law. On the meal tax: I wouldn’t mind if I had even a shred of confidence that city government uses tax dollars efficiently but since I don’t.. Repeal the meal.

  40. anonymous on said:

    The tax’s burden also falls on one industry more than any other’s, the restaurants. I think patch is right to question how the money is spent by the City and what citizens are really getting out of it.

  41. Scott/Patch,
    Meals taxes fall primarily on diners, lodging taxes fall primarily on out of towners, Property taxes fall on homeowners. Which tax do you want to repeal?

  42. anonymous on said:

    How about having a tax system that treats everyone more fairly and is not used by the rich to pay for their opera houses. How about ending this political system where residents are pitted against each other for the crumbs that corporate welfare leaves on the table? The emphasis on tourism is very short-sighted, more apt for some Caribbean banana republic than a functioning “tier-one” city.

  43. If you don’t think tourism generates jobs and revenue, visit Las Vegas, Orlando or Miami Beach. It’s the gift that keeps on giving.

  44. Liberty666 on said:

    Taxpayers are the gift that keeps giving

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