Sales Tax Slice: Bodega App May Vend Up Sales and Use Tax Confusion


Last week, the Bodega app burst onto the tech scene garnering a lot of attention over its name, in particular. Naming controversies aside, now that Bodega is in the spotlight it’s time to talk sales tax.

If you haven’t already heard, Bodega enables users to locate a desired “bodega station,” and, using a store code, access nonperishable food, drinks, sundries, and personal care items, among other things. The user is then charged for the item on a credit card which is linked to the app. Since these stations began popping up in San Francisco, they have also been referred to as vending machines, pantry boxes, and “convenience store-like kiosks.” Ultimately, these store/vending machine-like hybrids could potentially have different sales tax collection obligations depending on how they are classified from one state to the next.

For example, in California, a retailer’s gross receipts derived from the sales of vending-machine food are generally taxable, but some foods are only partially taxed when sold in this manner. Foods subject to a partial tax when sold by vending machine, such as candy, chips, juice and hot coffee, are not otherwise taxable if sold by a grocery store.[1] 

Let’s now assume that Bodega stations in California are treated like stores. In this case, the retailer would not be taxed on sales of candy, juice, chips and other items because, as previously stated, these items are not taxable when sold by a grocery store.

It is worth noting that California’s statute does not expressly address the sale of tangible personal property in this manner. But, items such as grooming products, which are likely to be made available at bodega stations, are generally subject to a retail sales tax rather than a gross receipts tax (gross receipts tax is normally imposed against the revenue collected by the seller and not the price paid by the consumer). If California treats Bodega stations in the same manner that it would vending machines, the state may also require the station owners to bear the burden of paying a gross receipts tax on such sales as well.

Unlike California, other states do address the vending machine sale of tangible personal property other than food and drink. In Georgia, for instance, tax is due on gross receipts from sales of tangible personal property by vending machine without regard for commissions paid to the person on whose premises the machine is located.[2] 

New York[3], on the other hand, imposes tax on sales of tangible property by vending machine if the sale exceeds $0.10, but there is no tax imposed on coin-operated bulk-vending machines which sell personal property for $0.50[4] or less (think old-school gumball dispensers). Additionally, New York provides that food and drink sold out of vending machines is given the same tax treatment that it would have in a grocery store.

This can get complicated, however, since food, food products, beverages, dietary foods, and health supplements, sold for human consumption are exempt from tax, while items such as candy, certain fruit drinks, and soda are not. Nevertheless, New York has carved out an exception to this rule indicating that otherwise taxable candy, fruit drinks, and sodas are exempt from sales tax if they are dispensed from a vending machine for less than $1.50 regardless of whether the machine accepts payments by coin, cash, or credit.[5]

If the Bodega-like business model catches on, it will probably generate some interesting questions regarding whether these sales should be treated as a vending machine sales or retail sales. There is certainly an argument to be made that the machine itself is doing no “vending” considering the payment for goods sold is made through the app, but perhaps this is more so an issue of substance over form.   

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How do you think states will tax Bodega stations?

Get a free trial to Bloomberg BNA Tax & Accounting's State Tax solution, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.

[1] California Tax Publication 118 (Jan. 2017).

[2] Ga. Comp. R. & Regs. r. 560-12-2-.06(1).

[3] N.Y. Tax Law §1115(a)(13) (subscription required).

[4] N.Y. Tax Law §1115(a)(13-a) (subscription required).

[5] N.Y. Tax Law §1115(a)(1) (subscription required).