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Daily Tax Report: State

Wendy’s Chain Unexpectedly Snared by New State Tax Rules

Jan. 29, 2020, 10:44 PM

The nationwide trend to enforce sales tax over online purchases is creating compliance nightmares for food giants like The Wendy’s Company, which must act both as a marketplace facilitator and a seller using other online marketplace facilitator platforms.

The Dublin, Ohio-based fast-food giant is finding itself at the center of a burgeoning tax conundrum. The business wants third-party delivery services to abide by ever-expanding “marketplace facilitator” laws that impose sales tax duties on online platforms used as a go-between. Dozens of state have passed laws designating online platforms that facilitate third-party sales, such as Amazon.com Inc. or eBay Inc., as marketplace facilitators.

But none of the delivery services deemed marketplace facilitators quite know how to do it yet, Tia Stern, Wendy’s manager of sales and use tax said Wednesday during a Columbus, Ohio conference on business tax developments.

The state rules are often written in ways that include platforms like Postmates, UberEats and DoorDash, which facilitate the purchase and delivery of food with a few thumb taps on mobile apps.

That brings a morass of complicated tax questions because state taxing regimes for food were designed for brick-and-mortar restaurants. Wendy’s is dealing with the problem twice—contracting with third-party marketplace facilitators and separately acting as its own facilitator for deliveries from its website.

“It’s a wildfire,” Stern said. “I think restaurants and food delivery businesses were not meant to get caught up in marketplace facilitation, but here we are.”

Pandora’s Takeout Box

In Ohio, takeout food isn’t subject to the state’s 5.75% sales tax. But carbonated beverages are, and so are toys in a kid’s meal. Other states like Massachusetts have similar tax wrinkles.

But the mobile delivery app companies aren’t equipped to properly calculate the sales tax on such complicated sales.

The apps also aren’t able to properly calculate tax on orders and deliveries across state borders, she said.

“When we started looking at this issue I thought, ‘Oh my Lord, I’ve opened Pandora’s box,’” Stern said.

Who’s On the Hook?

The issue implicates customer service, making sure that the sales tax is properly calculated for customers no matter which app they use. But there are also enforcement concerns, with possible liability to the company at fault for a miscalculation.

In the event that sales tax appears to be calculated incorrectly, Ohio will audit the facilitators, Sara Caldwell, legal counsel from Ohio Department of Taxation, said during the conference. But that topic generated a bevy of questions from concerned attorneys who said sellers might find themselves with problems down the line as well.

Under Ohio’s law, like with many other states, sellers such as Wendy’s are required to provide “sufficient and accurate information” to an online marketplace to make sure taxes are properly collected and remitted.

But what constitutes as “sufficient information” is hazy. For example, Susan Haffield, a partner with PricewaterhouseCoopers LLP’s Minneapolis office said some software isn’t equipped to handle the implications of the sale of carbonated tea that could be classified either as tea or as a carbonated drink, each classified and taxed differently.

Most of Wendy’s roughly 6,7000 restaurants are franchiser-owned. This means the corporate office will play an active role to make sure purchases through its online platform apply the right sales tax as well as thousands of distinct local food and beverage taxes.

“We’ll work hard to just say, ‘Make me the taxpayer and make this as easy as possible on our businesses until we settle this out,’” Stern said. “If it doesn’t stick we just have to untie everything and put it back the way it was.”

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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