Bill exempts tax on worker meals

OLYMPIA – Lawmakers want to exempt free meals given to restaurant employees from sales tax.

Existing law says the Department of Revenue can require restaurants to pay sales tax on the meals they provide at no charge to their workers during their shifts, as those meals are considered compensation for services provided.

But restaurant owners think this is bad public policy that encourages businesses to stop feeding their employees, forcing them to go offsite or pay for food out of their salaries.

Rep. Eric Pettigrew, D-Seattle, agreed, and proposed a bill to exempt restaurants from having to assess a sales tax on those free meals.

“This legislation makes it an exemption for those hardworking restaurant workers who aren’t getting paid very much, but could definitely benefit from having one free meal per shift,” Pettigrew told the House on Thursday.

Chad Mackay, president of Seattle-based Mackay Restaurants, said the Department of Revenue has put restaurants in the position of choosing not to provide free meals to their employees, rather than having to record and calculate the sales tax or risk not complying with the law.

Restaurants commonly hold a “family meal” once or twice a day, when employees are given food that’s not listed on the menu for the public. In Mackay’s restaurants, he said, employees can also order food from the main menu at a discounted price. But they don’t want that to replace the free family meal.

“We don’t actually want restaurants to stop feeding their people. A lot of people have gone to discounted meal plans only,” he explained. “We’re saying, why do we have to choose that? Why can’t we just feed our people?”

Another complaint from Mackay and Pettigrew is that the department has not been consistent in assessing the sales tax, which has caused confusion among restaurant owners who are now being audited aggressively.

Several representatives from the House Ways and Means committee said the current taxation policy doesn’t make sense.

“I found it very odd that after restaurants have collected sales tax on all the meals they actually sold, and (business and occupation) taxes on meals they actually sold, that somehow the Department of Revenue thinks they should collect sales tax on a meal they didn’t actually sell,” said Rep. Ed Orcutt, R-Kalama.

Committee head Rep. Ross Hunter, D-Medina, agreed.

The restaurants already pay sales tax and B&O tax on the meals that are sold, he said, but giving a free meal to their employees doesn’t change the revenue they receive, and therefore shouldn’t be taxed.

The bill’s fiscal note shows that by exempting those free meals, the state will lose about $600,000 in revenue in the next biennium. But Mackay argued that if restaurants continue to be taxed for those meals, they’ll simply stop serving them, so the Department of Revenue is counting on money it might not even receive.

The bill was approved 97-1 in the House and now advances to the Senate.