Will D.C. acquire a taste for taxed street food?
By Tim Carman,
With rolls starting at $11 and lines regularly stretching down the block, the Red Hook Lobster Pound truck has been something of a prey animal among those who think Washington’s mobile vendors don’t pay their fair share of city sales taxes. D.C. Council member Jack Evans is one of those sales-tax hunters.
“They’re obviously in the Central Business District, where most of the restaurants are, and you have people lined up outside, buying stuff, and they’re taking business away from the brick-and-mortar places,” Evans said about the Lobster Pound truck. “And they’re not paying any taxes.”
Evans is referring to the fact that mobile vendors, unlike restaurants, do not collect the 10 percent sales tax on food and pass it along to the city. At least not yet.
Noting that the “world has changed . . . and people are taking credit and keep better records,” Evans, as chair of the city’s finance and revenue committee, forwarded a bill last week that would require vendors to start collecting and remitting sales taxes. The bill, a revision of the Vendor Sales Tax Collection and Remittance Act of 2011, could receive its first reading before the D.C. Council in April; it’s expected to pass the full council and go into effect Oct. 1.
That few people outside of Evans’s office have a clear grasp on how taxes would be collected under the proposed law strikes some truck operators as a sign that the city just wants a quick fix on the sales-tax issue, which bricks-and-mortars have argued gives mobile vendors a competitive advantage over restaurants. Because trucks don’t apply a sales tax, they essentially can offer their food at a 10 percent discount vs. the dishes purchased at traditional restaurants.
The rewritten tax code would replace the existing arrangement under which vendors pay an annual $1,500 in lieu of taxes, a plan that Evans himself helped create in the early 1990s. The new bill boasts a two-tiered structure: Vendors who collect $375 or less in sales taxes per quarter will continue to submit $375 for that period (which, over the course of the year, equals the old $1,500 annual fee).
But those who collect more than $375 per quarter will be required to submit taxes from all sales made during the period. So if a truck sells $10,000 worth of food in the quarter, it would have to remit $1,000 in sales taxes; the new law would affect both mobile and sidewalk vendors alike.
The complication, as interpreted by some truck owners, is that each licensed vendor will be required to pay sales taxes. Many trucks in the District hold multiple licenses, because the city requires that a licensee always be on board, and the same person, say vendors, cannot be on the truck at all hours. That situation has the potential to double or triple the taxes of a food truck, because the city considers each licensee a sole proprietor and doesn’t connect licensees to specific trucks, says Che Ruddell-Tabisola, executive director of the D.C. Food Truck Association and co-owner of the BBQ Bus.
“We just need to know how to implement this,” says Ruddell-Tabisola. “Not understanding how the District would like us to collect sales tax puts us at tremendous risk.”
Proposed vending regulations that the D.C. Department of Consumer and Regulatory Affairs issued in January would help solve the confusion. The new regulations, if approved by the D.C. Council, would allow vendors to license themselves as a business entity (with badged employees) rather than as individual proprietors. But it’s unclear when, or if, the council will approve the vending regulations, which have been in the works for more than two years now. Evans said flatly that he couldn’t wait any longer for the council to approve new regulations before moving ahead with the tax bill.
“My position is, if I give you enough time and if you don’t do it, [expletive] you, I’m going to move ahead and put the tax in place,” Evans said. “That’s how I operate. People know that’s how I operate.”
The way Stephen Cordi, deputy chief financial officer for the District’s Office of Tax and Revenue, reads the proposed bill, each business vendor — not the individual licensees tied to the business vendor — would be required to submit sales taxes. But others, including staff members with Evans, say each licensee would be required to keep track of his or her individual sales during the quarter and remit the appropriate sales tax. The latter approach, while creating what some food truck owners see as an accounting nightmare, would at least eliminate the double or triple taxing.
That the city has moved ahead with the sales tax bill without remedying the licensing issue annoys at least one truck operator.
“They could have easily fixed [the licensing problem], but they choose not to,” says Josh Saltzman, co-owner of the PORC truck and its forthcoming spin-off restaurant in Columbia Heights. “But they don’t care about fixing the code and making it fair for all businesses. They care about getting retribution for businesses that have a problem with food trucks.”
None of the food truck owners contacted for this story said they had any problem with collecting and submitting taxes to the city, even if it will force some of them to install cash registers in their already-crowded work spaces to better account for sales. The Red Hook Lobster Pound truck, in fact, now collects sales taxes in Maryland and Virginia, where its two vehicles occasionally vend, says co-owner Doug Povich.
What bothers Povich, a working lawyer, is that the rewritten tax code could be enforced selectively; he wonders whether souvenir vendors near the Mall, for example, will be scrutinized as closely as the food trucks, despite his notion that the former may be earning as much money as the latter.
“I’m sure there’s going to be uneven enforcement on this,” Povich says. “It’s just natural that they’re going to go after the bigger guys like the lobster truck. . . . To me, that’s not equitable.”
Cordi says the agency has requested extra money for fiscal year 2014 to hire two new employees to oversee the sales tax collection of vendors. But he says he fully expects them to spread their time equally among the 1,473 people who hold vending licenses.
The public comment period for the new vending regulations closed last week. More than 3,200 comments were submitted to the DCRA; the department plans to spend the next week or two reviewing the opinions and talking with city agencies and various stakeholders about how to resolve the conflicts between food trucks and bricks-and-mortars. The DCRA hopes to bring the final regulations to the council before the end of the year. The council, of course, could reject the regulations and force all parties to operate under the current ones.
“The only thing everyone agrees on,” deadpans Helder Gil, legislative affairs specialist with the DCRA, “is that they don’t like the status quo.”