Do you have a romantic date planned for Valentine’s Day? For February 14, we thought it would be fun to take a look at a subject we love: How sales tax applies to different situations!
There’s a good chance your night will include thoughtful gifts, a delectable meal (with champagne or wine of course!) and romantic background music. Keep reading to discover how sales tax would apply to each part of the evening.
The Taxability Of Thoughtful Gifts
Traditional gifts like flowers, stuffed animals and jewelry can be purchased in nearby brick and mortar stores, in which case your state’s local sales tax would apply to each item.
That box of chocolates, however, would be taxed depending on the state you’re in. Ten states tax candy and “food and food ingredients” the same way, whereas 19 apply sales tax differently to food and 17 don’t tax candy at all. You can get the details in our post about how states tax Halloween.
What if you purchase your gifts on the internet? Thanks to the Supreme Court’s Wayfair decision, 45 states have adopted online sales tax provisions. This means there’s a good chance you’ll need to pay sales tax on your purchases.
How Sales Tax Applies To Your Dinner
Valentine’s Day dinner is one of those meals where you could either eat in or go out, depending on what you and that special someone prefer.
Dining In: If you choose to enjoy a delicious meal at home, your dinner likely won’t be taxed – although it does depend on the state; some do charge sales tax on groceries.
Dining Out: If you eat out, you’ll likely be paying sales tax. SquareUp does a nice job of summarizing the taxability of restaurant dining:
45 states and the District of Columbia require businesses to charge sales tax
38 of these 45 also have local tax rates that must be added to the state tax rate
Some cities require restaurants to add a separate dining-out tax
Dine-in and to-go orders may have different tax implications
Adult Beverages For Two – Taxable Or Not?
Background of Valentine’s Day celebration with champagne, rose, heart-shaped present and red candies.
Does sales tax apply to your Valentine’s Day champagne? Maybe!
What if you decide to open a bottle of wine or champagne along with your dinner? Most states have established alcoholic beverages as taxable, but they approach it in different ways.
As 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. Wine ‘control’ states include Mississippi, New Hampshire, Pennsylvania, Utah, and Wyoming.”
Within the category of alcoholic beverages, states tax at different rates, too – it goes beyond wine, beer or liquor. Wine Institute has a handy chart that clearly breaks down how each state taxes wine and in which ways. For example:
California taxes wine at $0.20 per gallon and sparkling wine at $0.30 per gallon
Georgia charges $1.51 per gallon of wine, but $2.54 per gallon for wine over 14% alcohol
In addition to wine and sparkling wine, Hawaii has an additional rate for wine coolers
Setting The Mood – Is There Sales Tax?
Do you plan to have background music during your Valentine’s Day date? Sales tax will apply based on where the melodies come from.
Although you could hop on Amazon to buy a CD from your favorite artist (in which case standard sales tax would apply), you may want to customize your evening with a playlist with songs that hold special meaning.
Digital Music Files
If you purchase digital music files, they fall into the category of “digital products,” which gets complicated. Many states’ laws were developed before digital goods were invented. As Avalara explains:
All states with a sales tax apply [digital products] to most “tangible personal property” — but an e-book can’t be held like a physical book, and a streamed movie can’t be grasped like a DVD.
Nonetheless, some states try to make old definitions and laws work for newer products. Some don’t tax digital products because they’re considered to be intangible, while others consider them tangible because they can be seen if not held. And some states use existing laws as guidelines: If a product is taxable in its tangible form, it’s taxable in its intangible form.
Ultimately, many states do tax digital products, although a good number don’t either. You can see a full list of those that do and don’t on Avalara’s blog.
Some couples would rather make a playlist on service like Spotify rather than purchasing each song individually. But since it’s a service rather than a product, does that mean it’s taxable?
Many states define music played on services like Spotify as digital goods as well, which means the same sales tax you pay when you purchase the song digitally is applicable for streaming it. Even if you don’t download the song to your device, it’s played through a program or app you downloaded, which qualifies as electronically delivered software and falls under the same digital goods category.
What if you decide to turn off the tunes and pull up another streaming service like Netflix or Hulu?
According to Tax Foundation, “More than half the states have expanded their sales tax bases to include video streaming services, such as Washington and Pennsylvania.”
This will continue to expand as more states update their tax code, as Kansas is currently considering. And it’s not just states that will figure out ways to apply sales tax to streaming content. Chicago, for example, has an “amusement tax” that applies specifically to services like Netflix and Hulu – but not to digital downloads because those are considered physical products.
As you can see, it gets complicated quickly!
But we really want you to enjoy your Valentine’s Day! So, for now, take a break, enjoy your champagne, dinner and a movie, and call us next Monday! Here’s to love!
Have a question? Contact Monika Miles.