A former colleague of mine at OSU loves to talk about sandwiches. Not how they taste, where to get a good one at a great price, or whether they are best “wit or witout.” Rather, the discussion revolves around exactly how to define a sandwich. What, exactly, is a sandwich?
A thought experiment: Imagine you are at a friend’s house. It is lunch time. Your friend asks if you would like a sandwich. You say yes. The friend goes into the kitchen, as you dream of pastrami, or PB&J, or tuna, or bologna. Your friend returns with a hot dog. Do you feel like you have been mislead? Is a hot dog a sandwich?
It’s a tricky question. If your friend would have brought back a bologna sandwich, you almost certainly would have felt like you got a sandwich, even if you don’t like bologna. But what is the functional difference between a hot dog and a bologna sandwich? The shape of the meat and the bread. That can’t matter that much, can it?
Let’s say we define a sandwich as some kind of meat inside some kind of bread. Hot dogs count, but it still does not feel right. Peanut butter and jelly does not count. So we relax the meat, and say it can be something sweet inside the bread. Then we get a pop tart counting as a sandwich. When I posed this dilemma to my wife, she countered that the pop tart is sealed on the edges, so clearly not a sandwich. But, we have a “sandwich maker” that toasts a sandwich, and seals it. And is pita not a sandwich? Sealing can’t be the reason. Maybe the type of bread? It can’t be a quick bread? Imagine I cut a pizza in half, and stack it together, with the toppings in the inside. Sandwich? What if I roll the bread out real thin, and put things inside, making a burrito, fajita, or wrap? Sandwich?
It gets very complicated. What is the definition of a sandwich. What does this have to do with taxes?
First, there is a direct connection. In both retail sales tax systems and value added tax systems, different food items are tax differently. Is something a biscuit or a cake? A crisp or a chip? A hot dog or a sandwich. It may matter for tax purposes.
The second is a broader application. The tax system writ large is full of classification. We have to classify income as either capital, or labor. We have to classify physical assets as capital, or inventory. We have to classify X-Men as dolls or non-human toys. We have to classify all sorts of things, and these classifications can have dramatic tax differences. But, it is very hard to clearly define exactly what we mean in a lot of cases. And when the definitions for classifications allow for some interpretation, you can bet that the taxpayer will interpret the situation in the most tax-advantaged way possible. Any tax system that depends on classifying things in different ways will run into this problem, and it is just one of many things that make a tax system complicated. Because, in the end, if sandwiches are tax advantaged in some way hot dogs are not, a hot dog will definitely be a sandwich.
Some updates (all from the same amazing detail-oriented reader)
Here is the definitive classification of sandwiches
New York classifies a burrito as a sandwich
Lots of other great classification examples in tax. Here is another
