The benefit of free or discounted food enjoyed by numerous Steamboat Springs restaurant employees is threatened, says state Sen. Al White, who is the prime sponsor of a bill to protect shift meals from state taxes.
White, R-Hayden, said Senate Bill 121 aims to clarify a 1978 law that exempted employee meals from state sales tax. The bill goes before the state Senate next week. An independent fiscal analysis shows the bill would reduce state general fund revenues by $400,000 a year at a time when state finances are so tight the Legislature is considering cutting higher education spending by $300 million.
Although the 1978 bill exempted shift meals from sales tax, it also states that the meals will be considered part of an employee's wages. If a restaurant owner does not record the meals as compensation in their wage documentation, the Colorado Department of Revenue is justified in charging sales tax on shift meals, department spokesman Mark Couch said.
"The law is clear that employee meals are subject to sales tax or must be declared as part of the employee's wages or salaries and income," Couch said.
But Pete Meersman, CEO of the Colorado Restaurant Association, said that approach runs contrary to the spirit and intent of the 1978 law, and claims the Department of Revenue has chosen this interpretation when auditing restaurants only in recent years, which Couch denied.
"Employers who have been involved in these audits have said it's just not worth it : so they're discontinuing employee meals," Meersman said. "We think the Colorado Department of Revenue is way out on a limb in this. : Even though I think and Sen. White thinks this tax is being collected illegally, we're running this bill to make it completely clear."
S.B. 121 eliminates the requirement that shift meals be recorded as compensation to qualify for the sales tax exemption. It passed the Senate Appropriations Committee, 10-0, on Friday and will go before the full Senate next week.
"I hate to see the industry suffer the indignity and expense of having to pay back-taxes on this. If we don't stop this, restaurant owners and managers will simply stop providing meals," said White, who noted low-income restaurant workers' reliance on the meals. "I think these meals are important to people."
Rex Brice, owner of three Steamboat restaurants, said he is absolutely in favor of the bill and finds it "kind of ridiculous" that he has to pay sales tax on discounted and even complimentary meals for his employees.
"It's just an opportunity for them to collect more money from us, and it's disappointing," Brice said.
Nonetheless, Brice said he has not considered discontinuing shift meals at his restaurants.
"It's something that we can provide for our staff. It's unfortunate to have to pay the taxes, but one of the advantages of working in the restaurant business is the ability to get discounted or free food," Brice said. "It's a difficult thing to get rid of, but that amount of tax is a lot of money."
White, a member of the state's Joint Budget Committee, said he does not agree with the Colorado Legislative Council Staff's financial analysis of his bill that shows the $400,000 annual hit to state finances.
"I don't think they had the authority to collect the money anyway," White said. "That, I believe, is $400,000 that never should have been collected in the first place."