Sink Your Teeth Into This One
Ernie Neve, CPA
September 20, 2017
"You better cut the pizza in four pieces because I'm not hungry enough to eat six."
The calendar is full of little-known commemorations that probably escape your attention, and this month is no exception. Some of them are just silly, like September 19's International Talk Like a Pirate Day. (Although, really, if you don't think pirates are cool, what's wrong with you?) Some are obscure, like September 23's Restless Leg Awareness Day. But some of those special days resonate with everyone. And that brings us to September 20: Pepperoni Pizza Day. Yes, it's really a thing, and yes, it's magnifico!
Just about everyone loves pepperoni pizza. Even vegans can enjoy it with dairy-free cheese and meatless pepperoni substitutes. (Don't mock it until you've tried it!) Americans eat over 100 acres of pizza per day, and 36% of those pies have pepperoni on top. We eat over 250 million pounds of pepperoni on our pizza every year. Naturally, tax collectors love it . . . so let's see how they take their slice or two of the pie.
Pizza is a $44 billion industry here in the U.S. The top 50 chains, led by Pizza Hut, Domino's, Little Caesars, and Papa John's, account for $24.75 billion in sales. Smaller chains and independents gross $19.75 billion more. That means billions in sales taxes going to state and local governments, billions in corporate income taxes from the companies that sell those pizzas, and billions in personal income taxes from the actual people who own those businesses.
There are 76,723 pizzerias in America. Every one of those parlors pays property tax on the location. It would be poetic if New York-style pizzerias everywhere paid tribute to New York and deep-dish pizzerias nationwide kicked up to Chicago, but cross-state tax compacts aren't quite so flexible.
Fortunately, taxes on pizza aren't all "takeout." Every one of those gooey delicious pies starts with raw ingredients like wheat flour, tomato sauce, cheese, and meat. Our tax code offers some savory tax breaks to the farmers who supply those ingredients. Pork producers, for example, get depreciation deductions for farm equipment and confinement facilities to turn three-pound piglets into 275-pound hogs in just six months. That's a lot of pepperoni!
Does all this pizza talk have you thinking about opening your own place? Watch out for audits! Pizzerias are largely cash businesses, which makes it easy to skim off profits. In the early 1990s, the IRS conducted an in-depth study of mom-and-pop pizzerias in the Providence, RI area and wrote an entire guide for auditors examining them. If you're under audit, and the examiner suspects you're underreporting your sales, he might contact your meat supplier to see how much pepperoni you bought, then compare it to the pizza sales you report. If the numbers don't add up, you'll have some 'splainin to do!
Finally, don't be fooled by places serving "flatbreads." It's pizza. They just call it flatbread to charge more.
We realize there's no easy way to transition from pepperoni pizza to tax planning. But there is a connection. The less you pay in tax, the more dough you'll have to enjoy America's favorite comfort food! So come to us before you get hungry, and let's see how much more of your income "pie" you can actually eat!