8 Puzzling Sales Tax Rules


Colleen Greene/Flickr

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

NEXT: Shikha Dalmia on the Impossibility of an Ideology-Free Conversation on Global Warming

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. I was going to offer up the bagel rule, but you included it.

    Really, the answer is to get rid of sales tax all together. It’s asinine at the best of times (on top of being outright theft).

    1. Do you believe the government has any role, ever, in anything, even a court system or running elections? If so, how do you believe such functions should be funded?

      1. Running elections? The only election I had any faith in the accuracy of was run by the American Arbitration Association. While the outcome was crap because the candidates were crap, the open processes and the ability for any voting member to audit them gave me far better confidence that the results were accurate than any government run election ever.

        Courts can be debated on how they are run, but really the actual needs of a court system versus what we’re being charged for it are vastly different.

        1. I didn’t ask whether you had faith in elections or whether we are being charged appropriately for a court system.

          I asked whether you believe there are any legitimate government functions at all. If so, how should such functions be funded.

          1. Maybe a court of last resort when there’s accusation of bias in the arbitrators. Run in a ‘loser pays’ model where attorney’s fees includes the cost of the judge. And some criminal matters such a murder where the victim can’t take the case up themselves. I’m not sure on the funding mechanism in those cases, I’m looking for one with the least incentive for abuse (ie, make it more annoying to defraud than to seek a more producitve living.) I’m also open to suggestion, because I know I’m not smart enough to develop an unbreakable system. (Though I’d settle for robust to buy a few centuries)

            1. I wonder how many surviving victims of crime would have the means to fund a criminal investigation and trial for the prospect of convicting a likely judgement-proof criminal. That approach seems chock full of incentives and outcomes that probably aren’t ideal.

              As far as the funding of even such a minimalist system, I don’t have any suggestions that couldn’t be labeled “outright theft” in the same way sales taxes can be.

          2. I’d like to answer that question as if it were addressed to me.
            I think all taxes should be voluntary.
            Example- When you sign a contract you could pay an upfront fee to the government to enforce it, or you could pay a private arbiter, or no one to enforce it if you choose. You could also donate money if you if you wanted to.
            Further more, I think voluntary taxation coupled with sound money and a cap on government’s ability to borrow may be the only thing that gets us a limited government long term.

            1. This is too reasonable.

      2. Assuming the State is a must / foregone conclusion, then voluntary funding through games of chance; Lotteries.

        a.) It is (should be) completely voluntary to participate;

        b.) It gives the people a chance to “vote” with their pocket books; don’t like policies, don’t fund the State. If enough people boycott, then the State will have to change (ideally without making participation mandatory by threat of force).

    2. the bagel rule

      In other words, it’s a prepared food. It is not a special “bagel tax” – it is just the usual sales tax.

      1. But what makes “prepared food” so taxable when food isn’t? The difference is literally who wielded the knife that cut the bagel in half.

  2. Why should food ever be taxed to begin with, silly examples aside?

    1. It’s a revenue stream like anything else…and a progressive one, at that.

    2. There you go stirring the pot on the “what is food” debate on a “what is food” debate thread.

  3. This is why the Fair Tax would never work. The national sales tax would quickly morph into a huge and unmanageable code as favored businesses and social engineers competed to get this taxed less and that taxed more.

    1. Yep. The idea that the “prebates” wouldn’t become the vehicle for this type of manipulation of the tax code is simply unpossible.

    2. Well, even a flat tax would do the same.

      It wouldn’t take long after a reset for deductions and credits to start popping up again.

    3. Good point, but I think what you’re describing would be inherent with any type of taxation.

  4. That SSGTB seems like the pinnacle of bureaucratic achievement/tom-foolery. Their deliberations must be better than caffeine-laced cocaine.

  5. However, the restaurant is not required to

    Not required to what? The suspense is killing me!

    1. … serve those without shirts and shoes?

    2. Gah. Thank you. Added: “collect sales tax on bakery items purchased without utensils from its bakery.”

  6. Jobs

  7. Shut up and take my money!

    1. I think that was a different episode. These are the Twix you are looking for.

      Includes flying car banter, Ed Begley, Jr., and Blade Runner.

  8. In Colorado, paper cups and disposable containers are considered “essential” food items, and therefore exempt from sales tax.

    I’m surprised they aren’t subject to some sort of punitive additional litterbug tax.

    1. Excise taxes on paper and styrafoam.

    2. My solid gold goblets and utensils are essential food items too.

  9. Not to mention the bizarre rules on deposits on ‘soda’ bottles. Here in Michigan beer,soft drinks, wine coolers, and carbonated and mineral waters are subject to a deposit, but plain water, juice and energy drinks are not. I wasn’t here when these laws were enacted, but I’m assuming that it’s based on whoever lobbied loudly enough (or paid off enough legislators–for the chillun…)
    It’s not based on any actual fact, or anything… But it does lead to large machines at the entrance to most supermarkets with crowds dropping bags full of empty bottles into the machines to get their 10c back.
    What a weird world we live in.

    1. What’s to stop someone in a neighboring state without a bottle deposit from collecting their bottles, crossing the state line, and getting a nice little refund?

      1. The yield ratio and the fraud charges.

        1. I don’t know… seems to me that getting $2.40 for a case of empty bottles I would have thrown away is not a bad deal. Better than recycling aluminum beer cans for more beer money, and I do that all the time.

          1. You must live close to the border.

            And is $2.40 worth the risk? (Of going to court for fraud, I mean)

            Also, I don’t know if there’s a difference in bar code based on location of sale (which would make the machines reject the bottles)

          2. $2.40? How much is a gallon of gas where you live?

            I mean, yeah, if you were already going to be going to the other state anyway and you had the time, room, and inclination to deal with hauling around 50 bottles for the sake of $2.40, it could make sense.

            1. Well, with the aluminum cans, I wait until I have a few bags full, then I make the trip. I don’t live anywhere close to MI, but I’m just saying that if you did.

              UCS, if they go by bar codes, then I suppose that’s a problem…but a lot of individual beer bottles sold in cases don’t have bar codes on them…at least not in my neck of the woods.

              1. I wait until I have a few bags full, then I make the trip.

                NEM isn’t good when it comes to logic. It’s easier just to insult everyone immediately.

        1. Cool! Thanks for the link–an episode I never saw. Wonder why Saginaw–it’s not close to any Michigan border. Maybe it’s just a funny name.
          I doubt you’d get caught for fraud–if you’ve ever seen the scene in front of these machines you’d understand the idea of policing it is absurd.

    2. Here in NYC, we simply throw those bottles and cans away in public trashcans (aka the sidewalk) and let the homeless deal with depositing them.

  10. This is not a uniquely US issue. Cadbery sells two types of very similar biscuits (cookies)in the UK. One biscuit has chocolate on one side, considered food and has no VAT tax added. The same biscuit, with the same chocolate on both sides is not only candy, but a luxury item, so is taxed as such.

    The Danes have any easier way around these questions; they just tax the shit out of everything.

  11. Is there a difference on the sale tax on an article that depends on the alt-text?

  12. No Sales Tax in New Hampshire, bitches.
    (Although there is that pesky 9% restaurant tax)

  13. is it just me or is 42 the most common number of comments on an article once the commenting has died down?

    of course me posting this bumps it up to 43, but you get my point

  14. In NYC, a pound bag of almonds might or might not be subject to sales tax depending on where you buy it. At a grocery store, it isn’t. At a stand at an airport, it is.

  15. Not to rain on your parade, Ms. Brown, but that list at the end is only 22 states. You said 24.

  16. The New York thing is actually at least intellectually consistent. The taxing philosophy, such as it is, is that food intended for consumption in the home is a bare necessity for survival and therefore not to be taxed, whereas food intended for consumption outside the home is a luxury, or at least not a bare necessity, and therefore fair game.

    All New Yorkers know that a proper bagel becomes inedible within just a few minutes of being sliced, therefore a store-sliced bagel is intended for consumption outside the home. Pre-sliced bagels sold in a bag like Lender’s are presumed to be for home consumption and are apparently not supposed to be taxed, but no New Yorker has ever purchased them, making the hypothesis untested.

    This system, while unwieldy at times, is actually vastly preferable to an alternative in which the legislature tries to define exactly *which* at-home foods are too luxurious to escape taxation.

Please to post comments

Comments are closed.