Tricky items for sales tax (Part 3)

Our Halloween-month look at tricky items concludes with a natural: candy.

Consumers are expected to spend more than $3.1 billion on candy this Halloween. (Did you know a kid would have to play full-court basketball for more than 14 straight hours to burn off all the calories in a typical Halloween candy haul?)

Remember when you were a kid and you thought candy was food? Then you grew up and realized it wasn’t? States are like that, too: sometimes candy is considered food (groceries) for sales tax purposes, sometimes it’s not and sometimes it’s somewhere in between. In many states, for instance, liquor-filled candy – which admittedly few are going to give to kids on Halloween – can be taxed differently than regular candy. Flour in candy can also result in a different sales tax treatment depending on the state.

So where and when do you charge sales tax on candy?

Coast-to-coast free-for-all

Candy is taxable in most states, including in several where candy is specifically excluded from the exemptions groceries receive from sales tax. Louisiana, Michigan and Massachusetts consider candy a non-taxable non-food. It is also non-taxable in California, Arizona, Nevada, Washington, West Virginia and Wyoming. For eCommerce purposes, it’s non-taxable in the District of Columbia and Ohio.

Candy is taxable in Kansas and South Dakota – but could eventually be exempt as lawmakers move to make groceries free of sales tax including candy. However, this won’t happen by this Halloween. The exact opposite is true in Nebraska, where it might soon be taxed. It’s non-taxable in Georgia and in South Carolina but may be subject to local level sales taxes.

It’s taxed at reduced rates in Missouri and Virginia. Ditto Utah – except if a transaction includes both food/ingredients and other taxable items of tangible personal property.

‘Not merely because’

Two states seem to spotlight how confusing candy and sale tax can be. In New Mexico, candy is non-taxable if it’s sold at a “retail food store” – indicating that nexus may be the deciding factor for eCommerce sellers.

In New York, candy is taxable but a number of products fall outside the definition: baked goods such as cupcakes, cookies, pretzels, donuts, pastries and granola or cereal bars; baking or cooking ingredients such as candied fruitcake ingredients, chocolate chips or bars and marshmallows “of any size”; and dried fruit.

How the product is “labeled, packaged, advertised, displayed and sold” can determine tax status in New York. Pure maple sugar products are exempt as food, for example, “unless displayed, labeled or advertised as candy or confectionery. They are not candy merely because they are molded in the shape of a maple leaf or sold in individual quantities.”

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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 us to learn what it means when sales tax is all on us.