Cash-strapped New York starts enforcing sales tax on sliced bagels

In New York, the sale of whole bagels isn't subject to sales tax. But the tax does apply to "sliced or prepared bagels (with cream cheese or other toppings)," according to the state Department of Taxation and Finance. And if the bagel is eaten in the store, even if it's never been touched by a knife, it's also taxed.

That was news to one New York bagel-store owner, who found out he was out of compliance with the policy this summer when the state audited his company.

Kenneth Greene, the owner of 33 Bruegger's Bagel franchises throughout New York, says the state demanded that he start charging taxes on all bagels, except for those that remain intact and are consumed off premises, and forced him to pay a "significant" sum in taxes that the state estimated he owed.

Mr. Greene says the extra charge, about eight cents a bagel, depending on the local rate, filled his customers with boiling rage. "They felt we were nickel-and-diming them. They thought we were charging them to slice a bagel," he said.