Vending machines spark tax debate

If you buy it in a grocery store, you don’t pay sales taxes. If you buy it from a vending machine, you do.

Fair?

Assemblyman Matthew Dababneh doesn’t think so, but so far some of his colleagues disagree.

But the Assembly Revenue and Taxation Committee held on to the bill, effectively blocking it for the year. Its outlook for next year is uncertain, although its proponents are hopeful.

Dababneh, D-Encicno, is carrying AB 155, which would eliminate the sales tax for food products sold in vending machines. The tax brings in about $5 million annually into state coffers, according to the Board of Equalization.

“It is the position of the vending operators in California that their companies and their customers should not be forced to pay tax on food products that would be exempt if they were purchased at a retail location rather than through a vending machine,” Dababneh says.

But the Assembly Revenue and Taxation Committee held on to the bill, effectively blocking it for the year. Its outlook for next year is uncertain, although its proponents are hopeful.

Currently, food products like candy and snack foods are exempt from sales taxes if they are purchased at the grocery store.  However, those same products are subject to sales tax if they were bought from machines.

“The likelihood that consumers will benefit is small, as the tax is included in the cost of the products and is unlikely to be passed on to the consumer.”

Dababneh’s bill would exempt sales taxes for cold food products and hot beverages sold through vending machines.  This practice is consistent with sales tax policies in grocery stores, he notes.

The vending machine industry – including the California Automatic Vendors Council, the Canteen of Coastal California, and Biscomera Corporation — supports Dababneh’s legislation.

“If this bill were to become law, our industry would have the means to reinvest in our businesses in the form of jobs, technology improvements to our equipment, all contributing to increased sales,” said Pete Tullio, President and CEO of Gourmet Coffee Service and World Wide Vending in Van Nuys and the City of Orange.

Supporters also argue that there are benefits for the blind.  The Business Enterprise Program for the Blind, a program within California’s Department of Rehabilitation, has services that train legally blind individuals and provide them with job opportunities in operating and maintaining vending machines.  Since most vending operators absorb the sales tax, passage of this bill will level the playing field and increase profit margins for the Business Enterprise Program to reinvest.

The lone opposition to the AB 155 came from the California Tax Reform Association.

“The likelihood that consumers will benefit is small, as the tax is included in the cost of the products and is unlikely to be passed on to the consumer,” Lenny Goldberg, the group’s executive director, wrote the committee.
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Ed’s Note: Alvin Chen, a UC Berkeley student, is a Capitol Weekly intern.