Coming soon from a vending machine: Salad, milk ... tax break?

(AP) Some Minnesota lawmakers want to reward health-conscious behavior on the go by repealing sales taxes on milk, fruit and other nutritious items sold in vending machines.

The "Healthy Foods Initiative" would undo what the vending industry has long viewed as unequal tax treatment: A yogurt purchased out of a convenience store refrigerator is tax-free, but state tax collectors get a bite if it comes from a vending machine.

The idea got some nods at a Senate Taxes Committee hearing on Monday, and with the panel's chairman pushing the legislation, it's a good bet to become law this year.

The change wouldn't mean that much more spare change in customers' pockets. But supporters say it would give vendors an incentive to devote more slots to fresh food, and would also mean a bit more money for schools that earn a share from vending machines on their property.

The legislation would exempt milk, water, 100 percent fruit juice, fruit, yogurt and salads sold in vending machines from Minnesota's 6.5 percent sales tax, costing the government about $1.3 million a year.

"They're seeing a lot more water sold out of vending machines. I think you'd start to see more of the other items as well - more fruits, more salads, that type of things," said Rob Leighton, a lobbyist for the Minnesota Automatic Merchandising Council.

His group challenged the state tax code all the way to the Minnesota Supreme Court in 2004. The high court upheld the policy, which is based on the idea that vending machines are more like restaurants than grocery stores - and hence subject to sales tax.

Minnesota is among about 10 states - including Indiana, Rhode Island and Kentucky - whose vending machine tax policies are deemed "burdensome" by the National Automatic Merchandising Association, because sales taxes apply to food and drink that would otherwise be tax-exempt.

"A lot of the items that the vending industry sells up there, like snacks and milk and bottled water, those things are sold tax-free in the convenience stores, who are the chief competitors of the vending business," said Tom McMahon, an executive with the Chicago-based group.

Minnesota's dairy industry has pushed to exempt milk from the vending tax for several years.

The Minnesota Beverage Association - which represents the bottlers of Coca-Cola, PepsiCo and Cadbury Schweppes products - is neutral on the legislation. Lobbyist Joan Archer said her clients bottle water and juice as well as soft drinks, and she said whatever vendors saved on sales taxes would offset the higher handling costs for perishable items such as milk.

There's one potential inconsistency in the bill: Prepared salads are considered taxable in Minnesota grocery stores.

No opponents turned up at Monday's hearing, but a candy industry representative in Virginia said the legislation appears unfair.

"Candy is already taxed in a discriminatory fashion in Minnesota," said Susan Smith, a senior vice president with the National Confectioners Association and the Chocolate Manufacturers Association. "All foods should be treated in the same manner."

Minnesota law exempts food and food ingredients from sales tax, but imposes the tax on candy, soft drinks and prepared foods such as restaurant fare. Restaurant food is considered a taxable luxury, while food prepared at home is considered a tax-exempt necessity.