8 Puzzling Sales Tax Rules
States are seeking some official guidance on whether take-and-bake pizzas are a prepared food or a grocery item. In many places, the difference determines whether these pies are subject to state sales tax (and also whether they're purchasable with federal food benefits).
At the moment, cooked pizza pies are generally taxed, while uncooked take-and-bake pizzas often aren't. But for clarification, states have turned to the Streamlined Sales Governing Tax Board (SSGTB), a group which provides sales tax collection guidance for 24 states*.
The SSGTB will be handing down recommendations on take-and-bake pizza later this week, it says. But the pizza issue is just one of many silly puzzles the regulatory distinction between groceries and prepared foods has created. What's resulted is a series of relatively arbitrary and absurd food categorizations. Take-and-bake pizza aside, here are seven more silly sales tax distinctions:
Pumpkins: Many states exempt pumpkins from sales tax if they will be eaten but not if they will be carved. Effectively, this means that medium-sized pumpkins tend to be exempted while mini- pumpkins and gourds are considered decorations for sales tax purposes.
Candy bars: In 24 states, Hershey bars but not Twix bars are subject to sales tax, according to NPR. It's because of the presence of flour in Twix, which takes it from taxable candy to non-taxable grocery item. In case you're curious, here's a six-page definition of candy from the SSTGB.
Baked Goods: In Texas, bakery items are exempt from sales tax "unless sold with plates or other eating utensils." As an example, the state clarifies that "a roll served in a restaurant with a meal is taxable even if the roll is served rolled up in a napkin rather than directly on the plate. However, the restaurant is not required to collect sales tax on bakery items purchased without utensils from its bakery."
Coconut Oil: It's sometimes taxed as a food, sometimes as a cosmetic, and sometimes as a supplement.
Ice cream cake: In Wisconsin, whether an ice cream cake is taxable is a complicated issue. The Wisconsin Department of Revenue explains that "generally, if a person mixes ice cream and one or more other food items to form an ice cream cake or ice cream bar, the retail sale of the ice cream cake or bar is taxable as a sale of prepared food. If the ice cream cake or bar is prepared by someone other than the retailer, it is not taxable unless it meets one of the other prepared food definition categories (e.g., furnished with utensils)."
Paper cups: In Colorado, paper cups and disposable containers are considered "essential" food items, and therefore exempt from sales tax. Napkins, straws, and plastic utensils, however, get no such exemption.
Bagels: In New York, there's an 8 cent per bagel tax for "altering" bagels by slicing, toasting, or adding spreads.
"When you are looking at crafting these definitions, you are looking at clear, bright line tests. You want to take the subjectivity out of it," Craig Johnson, the SSTGB's executive director, told NPR. He noted that it wasn't easy, with more and more foods straddling the line between prepared and unprepared.
In today's Wonka-esque food world, how will regulators even know what to tax anymore?!? Also prompting the question: Would snozzberry wallpaper be sales tax exempt?
*These states are: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming
