NCPA - National Center for Policy Analysis


March 12, 2007

The issue of free meals is an old one that resurfaces from time to time. Many states specifically exempt free meals given to restaurant workers, while others tax them.  In Maine, even though there is a law on the books, some restaurant owners say the Revenue Services has never gone after free meals -- until now, according to the Associated Press.

Under the Maine law:

  • A free meal represents a product that was taken out of inventory, which means it's subject to the state's 5 percent "use tax," which has been on the books since the 1950s.
  • One Subway sandwich shop owner, for example, who already pays about $20,000 to $25,000 per week in Maine sales taxes, was told he owed another $2,500 in taxes, and $500 in interest, for the free meals.

Many suspect the change of heart has something to do with the state's finances. Despite being one of the most heavily taxed states, Maine's budget remains tight.

But tax officials bristle at the notion.  "They say the state needs money so it's digging deeper.  That's just not true," said Peter Beaulieu, director of sales, fuel and special tax division of Maine Revenue Services.

Now that the tax agency is aware of the issue, free meals will be raised whenever restaurants are audited -- unless the Legislature acts, Beaulieu said.

Source: David Sharp, "No free lunch for restaurant workers in Maine," USA Today, March 12, 2007.

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