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Trick Or Treat! State Tax And Its Effect On Popular Treats



Monika Miles

Halloween is right around the corner. As you prepare to greet trick-or-treaters or dress in costumes for a party with friends, I thought it would be fun to look at how states are benefiting from the holidays, specifically through sales tax.

Obviously, certain Halloween items fall under standard taxes (e.g. Halloween costumes). But what about those treats? From candy for the kids to soda and adult beverages for the grown-ups, keep reading to learn how these sweets and drinks fall under state tax provisions.

Trick Or Treat! Candy Meets Sales Tax Laws

It’s estimated Americans will spend $2.6 billion dollars on Halloween candy this year. Although candy itself is small and fairly inexpensive, when you add up how many consumers are buying it, you can see why it becomes a state tax issue.

To determine if sales tax should be applied, the question is, “Is candy food or not?” The answer determines if candy is taxed the same way food is within the state.

But first, it’s important to understand which food items are actually considered candy – especially since there are 24 states that are members of the Streamlined Sales and Use Tax Agreement (SST). The agreement defines candy as, “A preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces…‘candy’ shall not include any preparation containing flour and shall require no refrigeration.”

This means sweets like Reese’s Peanut Butter Cups and Butterfingers are taxable. However the state defines candy, treats like Twix or Kit Kat are either exempt or taxed at the food and food ingredients rate because they contain flour.

Avalara summarizes the state tax laws surrounding candy nicely.

10 States Tax Candy And Other “Food And Food Ingredients” The Same Way
  1. Alabama
  2. Hawaii
  3. Idaho
  4. Kansas (SST member)
  5. Mississippi
  6. Missouri
  7. Oklahoma (SST member)
  8. South Dakota (SST member)
  9. Utah (SST member)
  10. Virginia
19 States Tax Candy Differently From Other Sales Of Food And Food Ingredients
  1. Arkansas (SST member)
  2. Colorado
  3. Connecticut
  4. Florida
  5. Illinois
  6. Indiana (SST member)
  7. Iowa (SST member)
  8. Kentucky (SST member)
  9. Maine
  10. Maryland
  11. Minnesota (SST member)
  12. New Jersey (SST member)
  13. New York
  14. North Carolina (SST member)
  15. North Dakota (SST member)
  16. Rhode Island (SST member)
  17. Tennessee (Associate SST member)
  18. Texas
  19. Wisconsin (SST member)
17 States Don’t Tax Candy At All
  1. Arizona
  2. California
  3. Georgia (SST member)
  4. Louisiana
  5. Massachusetts
  6. Michigan (SST member)
  7. Nebraska (SST member)
  8. Nevada (SST member)
  9. New Mexico
  10. Ohio (SST member)
  11. Pennsylvania
  12. South Carolina
  13. Vermont (SST member)
  14. Washington (SST member)
  15. West Virginia (SST member)
  16. Wyoming (SST member)
  17. District of Columbia
Raise Your Glass: Sales Tax & Alcoholic Beverages

Those that don’t plan to take the kids trick-or-treating or hand candy out from their doorstep will often spend the evening relaxing with friends, sweets and a few adult beverages.

When it comes to sales tax on alcohol, not all state tax provisions are the same. In fact, there are often different guidelines for the type of adult beverage: wine, beer or liquor.

Some states approach alcohol a little bit differently from one another. Tax Foundation explains, “While most states use a licensing system to regulate the sale of alcoholic beverages, other states–known as ‘control’ states–impose a government monopoly on the wholesale or retail of beer, wine, spirits, or all alcoholic beverages.”

Tax Foundation has a series of maps that visually show the various state tax rates across the country:

  • Beer: Although you’ll pay sales tax on your beer, vendors include all sorts of taxes in the cost of a cold one (specifically excise tax on both the federal and state level). In fact, about 40 percent of beer’s retail price covers the various taxes.
  • Wine: Wine tends to be taxed at a higher rate than beer, but at a lower rather than liquor. Most states charge wine vendors a per-gallon tax; many also impose various taxes and fees based on the type of wine, size of the container, amount of alcohol in the wine, where it was produced, where it’s purchased, etc.
  • Liquor: This category of beverages often sees the highest state tax provisions due to the higher alcoholic content.
Swallow This: How Sales Tax Applies To Soda Purchases

When most people think of Halloween, candy and alcoholic beverages come to mind. However, soda is another common commodity this time of year – especially at parties that include underage guests.

How do states handle soda in regards to sales tax?

At this point, there are not any state tax laws that apply to sweetened beverages, however Tax Policy Center explains, “Six local governments levy a per volume excise tax on drinks sweetened with sugar and one government levies a per volume tax on all sweetened drinks.”

Currently, the sales tax applies to these localities:

  • Albany, California
  • Berkeley, California
  • Boulder, Colorado
  • Oakland, California
  • Philadelphia, Pennsylvania (this one taxes all sweetened drinks)
  • San Francisco, California
  • Seattle, Washington

Have a question? Contact Monika Miles And Team

 

Monika Miles

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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