Frito-Lay says snack tax may reduce hiring at new plant

May 10, 1992|By Sherrie Ruhl | Sherrie Ruhl,Staff writer

Frito-Lay Inc. says Maryland's new tax on snack foods won't delay the opening of its Aberdeen manufacturing plant, but the tax may force the company to hire fewer workers for it.

Robbi Dietrich, director of government affairs for Frito-Lay, based in Plano, Texas, said it might employ fewer people than originally planned if sales are "dramatically" affected.

"We will monitor the effect the tax has on our sales for at least 90 days," she said.

"If sales drop dramatically because of the snack tax we may need to employ fewer people than planned."

Max Busetti, editor of the Food Industry Newsletter in Alexandria, Va., said he believes Frito-Lay is "over-exaggerating" the snack tax effect. He said companies in the "salty snack business" like Frito-Lay have more to fear from other competitors than any snack tax.

"There is a fierce price war battle going on among snack manufacturers to maintain market share," he said.

The "snack tax" takes effect on June 1, and the state has estimated that the tax will generate $10 million over a 12-month period.

Most food items are not taxed under Maryland's 5 percent sales tax.

But the General Assembly enacted a law that will tax many foods previously exempt from taxation, including some snacks.

Foods to be affected by the "snack tax" include potato chips and sticks, corn chips, pretzels, cheese puffs and curls, pork rinds, extruded pretzels and chips, popped popcorn, nuts and edible seeds.

The Aberdeen facility, which is scheduled to open in late 1993 or

early 1994, was originally expected to employ about 300 people, and as many as 500 later, Frito-Lay said. The snack maker announced it would build a production and distribution plant in ,, Aberdeen about a year ago.

At that time, the Maryland Department of Economic and Employment Development agreed to give Harford County a $500,000 grant to build sewer lines to the plant and $100,000 to train plant workers.

Dietrich said sales dropped off dramatically in California after that state introduced its snack tax last summer. She declined to release figures, because of competitive reasons, but said California sales of individual snack foods priced between 25 and cents fell off 10 to 15 percent.

Sales in other states remained level and in some cases climbed. She said total sales for Frito-Lay last year were up 7 percent to 8 percent.

"Sales did not decline in other parts of the county, so the reason sales dropped in California has to be because of the snack tax," she said.

She said the company, one of the nation's largest snack food makers, instituted a hiring freeze in January at its California operations as a result of the drop-off.

Dietrich said Frito-Lay believes the tax discriminates against them.

"We are not complaining about paying taxes in [Maryland] if they are fairly applied across the board," she said.

"Our products are being unfairly taxed while competing products are not," she said.

For example, she said SunChips, a new Frito-Lay food made from multigrains, will be taxed but that crackers "using the same technology and same ingredients" will not be taxed.

Smartfood and Chester Cheetah, two Frito-Lay pre-popped popcorns, will be taxed, she said. But microwaveable or unpopped popcorn won't.

She said Frito-Lay also believes the tax discriminates against moderate- and low-income people. "Salmon, caviar and brie" and other dietary delights of the wealthy are not taxed, she said.

Dietrich said the snack tax could have a ripple effect on the companies that supply materials and ingredients to manufacturers, such as Maryland's McCormick & Co. Inc.

Frito-Lay is a "vitally important" customer for McCormick, the Sparks-based seasonings, flavorings and specialty foods company, said Allen M. Barrett Jr., McCormick press relations manager

McCormick, which has most of its facilities in Hunt Valley in Baltimore County, employs about 2,000 people in Maryland.

McCormick does not break down snack foods sales specifically, but Barrett said sales to snack-food manufacturers would come under its industrial/food services division. Sales for fiscal year 1991, ended Nov. 30, were $536.1 million for the industrial/food services division.

McCormick is also opposed to the snack tax for a variety of reasons, Barrett said.

"The tax starts with snack foods, but all foods could be a potential target," he said.

He agreed with Frito-Lay that the snack-foods tax in California had "definitely impacted sales at the retail level."

Barrett said McCormick is also concerned that the "snack could force snack-food manufacturers to leave Maryland and discourage others to even consider locating here."

Grocery stores are not happy with the snack tax either. Barry Scher, vice president of public affairs for Giant Foods Inc., based in Landover, said it's too early to tell what effect the snack tax will have on sales.

"Our problem is in handling the administration of the snack tax. We have to change our computer system, print new signs and change other internal administrative details to collect and administer the tax," he said.

Also, he complained, the state had reduced by 50 percent the fees retailers receive for collecting taxes.

"Retailers get to keep a percentage of collected taxes to pay for the administrative functions involved in collecting sales tax. We previously got to keep 1.2 percent and now get only .06 percent," he said.

"The state has asked us to collect more taxes but have lowered sales tax dealer discount for retailers," he said.

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