The following is a guest post by Kim Marie Eberhardt, a foreign law intern working with Foreign Law Specialist Jenny Gesley at the Global Legal Research Directorate of the Law Library of Congress.
The first thing that may come to mind when thinking about tax law is that it is often perceived as rather boring. At least that was what most people at the law school I went to thought. Turns out, it can actually be quite entertaining if you are a consumer and do not have to deal with these rules as a business owner.
In Germany and all other member states of the European Union (EU), the consumer does not necessarily realize how much tax is added to meals or beverages ordered in restaurants or cafes. The prices indicated on a menu already include taxes and thus represent the total to be paid. Europeans, therefore, often experience a common culture shock at checkout when visiting the United States. The check suddenly shows a higher total than what you were expecting when you ordered. However, this makes sense if you are familiar with the U.S. taxation system. The tax added to a prepared meal you order in a restaurant in the U.S. varies depending on your location. Not only does the sales tax vary between the states for prepared meals, but some cities may even impose their own city tax.
Comparing the 50 largest U.S. cities, in 2024, the tax added to a prepared meal varied from 12.03% in Minneapolis, Minnesota, to a flat 0% in Portland, Oregon. In most states, a prepared meal, to which sales tax is mostly applicable, must be distinguished from groceries, which are mostly exempt from sales tax. (For example Tax-General § 11-206(c) for Maryland.) Food is mostly categorized as a taxable prepared meal if it is ready to eat and/or served hot. (See, for example, Arlington County Code, § 65-1 (ready to eat); Maryland Tax-General § 11-206(a)(4)(iii) (heated food).)
In Germany, on the other hand, value-added tax (VAT) is uniformly regulated and applies to both prepared meals and groceries. The German federal states (Bundesländer) do not have the legislative power to regulate VAT or its rate. However, there are two different tax rates that could apply when you order a prepared meal in Germany. The default VAT rate is 19%. (German Sales Tax Act (Umsatzsteuergesetz, UStG, §12, para. 1.) But then there is also a reduced rate of 7%, which applies to all goods contributing to basic human needs and to everyday goods. (UStG, § 12, para. 2, no. 1.) That includes basic groceries like the German beloved bread, fruits, and vegetables. (UStG, nos. 31, 11, 10 of schedule 2.) Ordering a prepared meal to-go in a restaurant is also considered a contribution to fulfilling a basic human need for food, as long as you do not utilize any additional services. (UStG, no. 33 of schedule 2.) Enjoying a meal in a restaurant with silverware, which has to be cleaned, and a friendly waiter giving you recommendations, on the other hand, makes it an experience that may be considered a luxury. Thus, for the applicability of the reduced tax rate, the sole purpose of the meal has historically been the intake of food. This is the case with to-go orders, but it also applies to food stands, which do not offer any additional services besides the preparation of the meal. To pass this tax advantage on to the customer, some restaurants offer a discount for take-away food.
In October 2025, the current German government introduced a proposal to permanently reduce the tax rate for all kinds of prepared meals to 7% to subsidize the gastronomic sector, among other tax reform measures. On December 4, 2025, the German Bundestag (parliament) passed an amended version of this proposal. The German Bundesrat, the legislative body through which the federal states participate in the legislative process, had opposed the original draft act due to the overall expected negative financial consequences for the federal states, but approved the amended version in its session on December 19, 2025. The tax reform permanently reduces the tax rate for all kinds of prepared meals to 7%, with the exception of beverages. (UStG, § 12, para. 2, no. 15 (new).) The amendment must be signed by the Federal President and published in the Federal Law Gazette before it can enter into force. (Basic Law, art. 82.) It is slated to enter into force on January 1, 2026. (Amended Proposal, art.12, para. 2.)
The rather entertaining part about German tax law starts once we shift our focus to prepared drinks containing milk, such as the all-time fall favorite, pumpkin spice latte. Generally, drinks prepared in a restaurant, bar, or cafe, such as coffee or cocktails, are not considered basic food items under German tax law, which would lead to an applicability of the basic tax rate of 19%. The newly adopted permanent tax reduction would not apply to beverages. However, for milk, the reduced tax rate of 7% applies because it is considered a basic food item. (UStG, no. 4 of schedule 2.) The legislature recognized this dilemma and reacted: prepared drinks containing at least 75% of milk are being taxed at 7%. (UStG, no. 35 of schedule 2.) Thus, to a latte, which usually contains more than 75% of milk, the reduced tax rate of 7% applies, whereas a flat white, usually containing 2/3 of steamed milk, is taxed at a rate of 19%. In any case, this only applies to cows’ milk, because plant-based milk is not currently considered a basic food item.
To sum it up, in Germany, the taxation of mixed drinks depends on whether you order it to-go and how much milk it contains. In the U.S., the price varies depending on where you purchase your drink. Which approach is better or more transparent for the customer? You decide! Let us know in the comments!
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