(Source: MIRS.news, Published 05/11/23) Movie theater patrons who’ve turned to sneaking in their snacks could get a slight reprieve under a set of bills amending sales and use tax exemptions for bottled water, candy and soft drinks, but the Michigan Chamber isn't happy.
The bill package, which was introduced by House Tax Policy Committee Chair Cynthia Neeley (D-Flint) and Rep. Brenda Carter (D-Pontiac), stems from a 2020 Court of Appeals ruling between movie theater company Emagine Entertainment and the Department of Treasury.
During testimony Wednesday before the Committee, Amanda West, legislative director of the Department of Treasury, said the bills codify changes necessitated by the ruling in Emagine Entertainment, Inc., et. al. v Department of Treasury.
Currently, under the Streamlined Sales and Use Tax Agreement (SSUTA), a compact of 24 states in an agreement intended to simplify sales and use tax collection, the sale or purchase of food or food ingredients is exempted from the sales and use tax, but not prepared food intended for immediate consumption.
Prior to the ruling, the Department of Treasury interpreted that statute in a way that differentiated sellers with more than 75% prepared food sales. To qualify as selling taxable prepared food, they would only have to make utensils available to purchasers. However, for sellers with under 75% prepared food sales, they would have to physically hand eating utensils to purchasers.
David Matelski of Treasury said the interpretation stemmed from an assumption that in those cases, “more than likely, what you're doing is selling food for immediate consumption.”
West said that standard was held invalid in 2020 when the movie theater operator sued that prepackaged candy, bottled water and bottled soft drinks shouldn’t be subject to sales tax in theaters, which the Court of Appeals agreed with, as it was not prepared food.
The bill package now, which amends both the Sales and Use Tax Acts to update definitions relating to prepared food, ensures Michigan remains SSUTA compliant without disturbing the court ruling, West said.
Under the bills, including Carter’s HB 4377 and Neeley’s HB 4378, food sold by a seller with a prepared food sales percentage of greater than 75% would still qualify for tax if the seller made eating utensils available.
For bottled water, candy or soft drinks, however, a seller would need to hand overeating utensils directly to a customer or provide plates, bowls, glasses or cups, essentially providing an exemption for tax on these items.
In addition to specific reference to water, candy and soft drinks, the bill package excludes “food sold in an unheated state by weight or volume as a single item,” along with food that was pre-packaged with utensils already included.
The bill package was opposed by the Michigan Chamber of Commerce and the Detroit Chamber, along with the National Association of Theatre Owners of Michigan.
Leah Robinson, director of legislative affairs and leadership programming with the Michigan Chamber, said the bill creates confusion for business owners, specifically those operating above the 75% threshold.
“Under the legislation, items such as unsweet tea would be taxed, but sweet tea would not be subject to that same tax,” she said, under definitions established in the bills. “Similarly, prepackaged candy would remain untaxed, but prepackaged chips and nuts would be taxed. These are just a few examples as to the confusion this legislation creates for business owners and customers.”
Robinson said the Chamber requested additional work with Treasury, and SSUTA, to clarify and make improvements.
The bills were voted out of the House Tax Policy Committee on Wednesday, 7-5, after previously getting a vote out of the House Insurance and Financial Services Committee in April.
They were supported by the Michigan Petroleum Association.
The package is now headed to the House floor, where it awaits further consideration.
