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Are Popular Treats Affected By Sales Tax?



Are Popular Treats Affected By Sales Tax?

Halloween is just around the corner and while this year’s celebrations are likely to be more subdued than usual, it’s still a fabulous excuse to buy a few bags of candy, put on a scary movie and enjoy the spooky atmosphere. But what you might not know is that the amount you pay in sales tax for your Halloween treats (if you do at all) will depend on where you live.

Because states set their own regulations regarding sales tax, including what it’s applied to and for how much, a bag of candy bought in one state may have a wildly different tax rate than it would in another state.

Keep reading to learn more about how sales tax on candy, and taxes on food in general, vary from state to state.

The Complexity Of Taxes On Food

Before we can get into the specific application of sales tax on candy, let’s first talk about how taxes on food work in general.

Like many things, the taxation of food is complex. There are a variety of factors that influence its taxation.

To name just a few, these factors include:

  • If food is considered a “necessity.”
  • If the item is considered “prepared food.”
  • If the item is sold hot or cold.
  • Where the item is purchased from (e.g., a grocery store or a restaurant).
  • If it’s bought in person or online.
  • If the food will be consumed in the location it was purchased from.
  • The ingredients in the food.

When determining if a food item is taxable, the first question is whether food is taxed at a state level in that state at all? Some states consider food items a “necessity” and, in general, do not tax them, like WashingtonArizona and Wyoming. That said, even these states will have exemptions to this general rule and as a result, some food is still taxed.

For example, in Washington, “prepared food,” “soft drinks” and “dietary supplements” are all subject to sales tax.

Other states do generally apply sales tax to food items, such as Alabama, Arkansas and Idaho. However, states that generally tax food may also make exemptions and not apply tax to certain items.

Another thing that may impact the taxability of the food you’re purchasing (or selling) is where and how the food is being purchased. Some states that don’t tax food in general will add tax if it’s prepared by a restaurant or if it’s bought from a grocery store or other retailer, but it’s intended for immediate consumption (e.g., a sandwich from a grocery store deli).

To dive even deeper, sometimes the literal temperature of the food (whether it’s intended to be a hot food item or a cold food item) will change its status as a taxable item.

Ordering takeout, especially through services like DoorDash and UberEats, can also result in changes to the taxability of the food items. Many states have yet to implement legislation that includes specific references to services like these and as such, the way current legislation is interpreted may vary state-to-state.

Will Your Halloween Candy Be Taxed?

Now that we’ve discussed the wildly complicated world of food taxes, let’s get back to the original question of candy taxes.

If you’ve determined the state you’re in does place a sales tax on food in the way that you’re going to be purchasing (or selling) it, you can, generally speaking, assume that your Halloween candy will also be taxed.

That being said, some states, such as Wisconsin, North Dakota and New York, that do not tax food may have separate taxes on things like candy or exempt candy as a “non-necessary” food item.

The bottom line is that no two states have the same situation regarding the taxation of things like Halloween candy, and if you’re planning on making a large volume purchase of these items (or selling them), it’s important you have a thorough understanding of how taxes will be applied.

Have a question? Contact Monika Miles, Miles Consulting.

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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