Restaurants get tax exemption for prepared food donated to nonprofits to feed needy
What the new law does: Exempts prepared food from sales taxes when it is donated by restaurants to nonprofit organizations that regularly serve free meals to the needy and indigent.
Prepared food that remains unsold at the end of a restaurant’s business day can now be donated to qualified charities and used to feed Arizona’s needy without creating a tax liability.
The change took effect on Sept. 21 and results from S1506 (Chapter 225), a bill that passed 29-1 in the Senate and 52-2 in the House before being signed into law by Governor Napolitano on March 25.
“The tax code should never get in the way of doing the right thing,” said Sen. Dean Martin, R-6, the bill’s sponsor.
“The right thing is giving extra food to those who need it. We should encourage, not inhibit that kind of behavior.”
Many restaurants give surplus food to charitable organizations that pick it up and re-distribute it to homeless people, the elderly, victims of domestic abuse or to other groups in need, Mr. Martin said.
“There’s a lot of food generated by restaurants that at the end of the day is not consumed and by law can’t be saved overnight because it’s a health issue,” he added.
He said he drafted S1506 at the request of the Arizona Restaurant and Hospitality Association because some restaurants’ auditors noticed that the food they were donating was technically taxable.
“There were multiple restaurants that came up with it, from the large chains to the small independent ones,” said Steve Chucri, president and CEO of the association.
“Whether it was enforced or not, we still don’t want to break the law.”
S1506 eliminates restaurants’ liability by creating a deduction for donated food in Arizona’s classification of their taxable income.
“It was nice to work on something that I know is going to encourage companies to help those in need,” Mr. Martin said.
Only donations, including food, drinks and condiments, made to non-profit organizations classified as tax-exempt under subsection 501(c)(3) of United States Internal Revenue Code are affected by the bill.
The Internal Revenue Service recognizes more than a million 501(c)(3) organizations, including Planned Parenthood, Salvation Army, YMCA and Catholic Charities.