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Tax Day Lessons: Getting Bagels 'To Go'

Today is tax day, instead of April 15th, because of the Emancipation Day holiday last Friday in DC (I didn't know, either).

For years, TurboTax has been my "CPA". However, a couple of months ago the IRS sent my husband and me a letter saying we still owed taxes for 2009.

Hmmm...really?

Clearly the tax code had become too much for two college-educated, relatively intelligent professionals to comprehend. Time for a CPA! We hired our neighbor, Tom Dragotto. He immediately earned his fee by discovering that the IRS actually owes us money, not the other way around.

TAKE THAT! Still waiting for the refund ...

Meantime, I've been nagging my son to get online and do his taxes ASAP, that it couldn't be EZ-er (my overachieving daughter already took care of hers). He worked at a bagel store last year before going off to college, and even though he should be refunded all the tax he paid, he has yet to file.

I've tried to impress upon him the fact that the government looks for any opportunity to avoid giving back money. Filing late will get my son on the Tax Man's radar, allowing the IRS to charge penalties and find any means possible to a) keep the kid's money, and b) make the kid pay more.

Which leads me to bagels...

I walked into my son's previous employer this morning to order breakfast and noticed a sign from management explaining that customers must specify whether they want bagels "for here" or "to go". It turns out if you order bagels "to go"--even if they are sliced and schmeared--you don't have to pay California sales taxes. If you order them "for here", you pay taxes. Well, that's interesting! From now on, perhaps all my bagels will be "to go", and then I'll "go" over to a table.

I wondered whether all food "to go" in California is exempt from tax. If I order a meal at a drive-thru, is that tax free, compared to going inside McDonald's for a sit down?

Naturally, like everything else about the tax code, it's a lot more complex than that.

Here's the California sales tax code on drive-thrus. I hope you're sitting down.

"Tax applies to sales of food products ordinarily sold for immediate consumption on or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products purchased at the 'drive-in' establishment, even though such products are sold on a 'take out' or 'to go' order and are actually packaged or wrapped and taken from the premises of the retailer," the code says.

So drive-thru food gets taxed, right? Well, mostly.

"Food products when sold in bulk, i.e., in quantities or in a form not suitable for consumption on the retailer's premises, are not regarded as ordinarily sold for immediate consumption on or near the location at which parking facilities are provided by the retailer.

Accordingly, with the exception of sales of hot prepared food products (see (e) below) and sales of cold food under the 80-80 rule (see (c) below), sales of ice cream, doughnuts, and other individual food items in quantities obviously not intended for consumption on the retailer's premises, without eating utensils, trays or dishes and not consumed on the retailer's premises, are exempt from tax."

I'm feeling nauseous. If you're a glutton for punishment, you can read the entire tax code regarding food.

Here's an article that provides a pretty good summary. Basically, in bankrupt California, you DON'T have to pay sales taxes on hot beverages, hot bakery goods, and cold prepared foods if ordered "to go", (like a cold sub from Subway).

You DO have to pay sales taxes on hot prepared food products (except those listed above), meals from restaurants and hotels, food that is NOT "go to", food bought through a drive-thru, food you buy at place which required a ticket of admission (like a concert or Disneyland), and on carbonated drinks and alcoholic beverages.

And then it gets really complicated. You have to pay sales taxes on "to go" meals when more than 80 percent of the seller's gross receipts are from the sale of food products AND more than 80 percent of the seller's retail sales of food products are taxable based on the above...but...there are exceptions...if you want to do separate accounting...for...zzzzzzzzzzzzzzz

It's not just a California problem. The tax code is a national problem. How are we ever supposed to fix Medicare and Social Security when we can't even understand how to tax a take-out taco?

My short-term solution: order all your bagels "to go" and save yourself a little money, at least until that "loophole" is closed.

Questions? Comments? Funny Stories? Email funnybusiness@cnbc.com

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  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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