Sales tax can be complicated, with rules that frequently change and disparate application across the nation’s thousands and thousands of tax jurisdictions.
Economic and physical nexus. Tangible and intangible property. Taxable and exempt items. Rules that vary jurisdiction to jurisdiction even before those jurisdictions change them (which they do frequently). Sales tax, even at its simplest, can seem like a patchwork puzzle.
And that’s before you throw in odd rules and tax loopholes. Here’s a look at a few, starting with some kinds of food.
Everybody knows that taxes can generally be confusing and unusual – a hot-air balloon ride in Kansas, for instance, incurs amusement tax if the balloon is tethered to the ground and no tax if the balloon is flying free – but sales taxes can be in a league of their own.
Local wild blueberries are taxed in Maine, as are belt buckles in Texas, sparklers in West Virginia and playing cards in Alabama. Colorado taxes napkins and silverware. Indiana taxes some but not all marshmallows.
New York’s “bagel tax” has recently captured headlines, an 8.875% sales tax on prepared food that isn’t applied to unprepared foods (i.e., baked goods). Some eateries are reportedly getting around the tax by not slicing the bagels or putting a topping on them, leaving this to the customer after the purchase.
(The New York sandwich tax goes back more than a half-century and the tax on restaurant meals goes all the way back to the Great Depression.)
“Sandwiches are generally subject to sales tax,” reads a 2019 bulletin from the NYS Department of Taxation and Revenue. “Sandwiches include cold and hot sandwiches of every kind that are prepared and ready to be eaten, whether made on bread, on bagels, on rolls, in pitas, in wraps, or otherwise, and regardless of the filling or number of layers. A sandwich can be as simple as a buttered bagel or roll, or as elaborate as a six-foot, toasted submarine sandwich.”
Glorious food (tax)
Food and groceries are tricky nationwide for sales tax, often depending on where and how, as in New York, the food is sold.
Thirteen states taxed groceries as of last year, some at the full rate, some offering subsequent discounts or tax credits. Restaurant food is almost always taxed at the rate of the local/state sales tax.
Relieving the burden of sales tax on groceries has become a political tool during inflation, though Mississippi and South Dakota were among states that recently decided against eliminating their sales tax on groceries.
By the way, sometimes candy is considered food (groceries) for sales tax purposes, sometimes it’s not and sometimes it’s somewhere in between. Ingredients like liquor and flour can cause candy to be taxed differently.
Next time we’ll look at clothing, spirits – and what you might have to watch for if selling into states that have no statewide sales tax.
Everyone who says they’re simplifying sales tax is still leaving the hardest parts – and the liability – up to you. Rely on sales tax experts to maintain your compliance. Contact TaxConnex to learn what it means when sales tax is all on us.