Moviegoers cheered this summer when Mel Gibson battled the British in “The Patriot.” Fast-forward two centuries and a smaller revolt over taxes is brewing.
Instead of tea and stamps, this time around it’s a levy on Twinkies and Snickers that has some local vending machine operators up in arms.
They contend they’re being singled out for taxes on products that otherwise are sold tax-free at supermarkets and other stores.
“It is unfair that we are being singled out because we sell products out of metal boxes,” said Bill Walsh, founder and president of Anaheim-based Continental Vending Corp. “Nobody is getting the message. Maybe if we stop paying the tax, they will wake up.”
Vending machine operators such as Continental have to pay a tax that on average equates to about 2.5% of gross sales. The tax varies from county to county, with OC vendors having to pay at a rate equal to one-third of the county’s 7.75% sales tax. In all, the vending machine tax brings in about $10 million annually to the state coffers, according to officials.
Trade Group Backing
Walsh, who owns 3,000 vending machines in OC, is not alone. Sandy Larsen, director and counsel for the Western region of the Chicago-based National Automatic Merchandising Association, agrees with Walsh’s sentiment.
“In the age of budget surpluses it’s ridiculous that the state continues to collect a tax that only generates $10 million a year and hampers the industry’s growth,” she said. “Besides, most people who buy food out of vending machines are students and blue-collar workers who have a limited budget and cannot afford another tax.”
There is some interest in repealing the vending machine tax in Sacramento. Last year, a bill was introduced that would have exempted some items sold in vending machines from the tax. The bill unanimously passed the Revenue and Taxation Committee. But it stalled in the Assembly Appropriations Committee, where divided lawmakers never even voted on it.
“This issue is in the gray area,” said Steven Shea, an appropriations committee consultant. “Because it is hard to classify a vending machine as a grocery store or a restaurant, both of which have different taxation, the leadership sees this tax in a different light.”
Similar legislation, Assembly Bill 2824, has been introduced in the current session. But it has yet to be heard by a committee.
The California Association of Counties is leading the charge against repealing all or part of the vending machine tax. The group has nothing against vending machines operators, said Pat Leary, a legislative representative for the association. It’s just that for any tax to be repealed, state law requires that Sacramento find a way to make up for the money counties would lose. And Assembly Bill 2824 exempts the state from having to offset the loss of revenue from the vending machine tax, she said.
“We have opposed all reductions in sales taxes until the state gives the counties the monies guaranteed to them by law,” Leary said. “We sympathize with the vendors. However, we even have opposed the reduction of sales tax that would save the state $500. The state owes the counties money. And the counties, unlike the state, are financially strapped and need the cash.”
Since vending machine prices are set in five-cent increments, machine owners say they either absorb the tax or pass it on to consumers. But the vending market is so competitive that usually they end up paying for the tax, they say.
Industry officials point to the 1992 voter-backed repeal of the so-called “snack tax” in trying make their case. Proposition 163 eliminated sales tax on chips, sodas and other snacks.
“When caterers and convenience stores get a break, so should we,” said Wayne Hood, president and owner of Hood Services of Los Angeles, which has more than 300 vending machines in OC.
But Proposition 163, which repealed the snack tax, is a separate issue from the vending machine tax. The repeal of the snack tax ended levies on specific items such as gum, candy and bottled water that were enacted in 1991 to help the state temporarily make up for a shortfall during the recession. In fiscal 1992, the tax brought in $210 million. In contrast, the tax on goods sold in vending machines has been on the books since the 1940s.
Momentum Building
While industry officials concede their tax is different than Proposition 163’s snack tax, they point to how eagerly voters overturned it: nearly 66% of voters endorsed the initiative.
Some vendors are calling for just a partial repeal of the vending machine tax. They would like to see it done away with on products such as bottled water and cookies. Others in the industry feel the tax should be eliminated entirely.
“There should not be any tax on food from vending machines that you can buy elsewhere, free of tax,” said Dan Phelps, president of Food Systems Inc. of Buena Park.
Dick Atnip, president of Fullerton-based Atnip Company Inc., boils the whole tax issue down to greed.
“The government wants the dollars,” says the 40-year-veteran of the vending machine industry. “All the politicians keep shaking their heads and agreeing with us, but do nothing. They want to keep the money.” n
