To tax or not to tax?

Bars, drops, or pieces. Take a deep breath and repeat it. And again. That soothing mantra goes through my head whenever I’m determining product taxability in the candy section of a client’s inventory. Interrupt it with a word like “chunk,” and you’re looking at a problem. Sneak flour into a candy that doesn’t typically include it, and you might as well write off an afternoon on researching every similar candy to make sure that you haven’t been taxing all of them wrong.

The phrase “bars, drops, or pieces” comes directly from the Streamlined Sales Tax (SST) definition of candy. The Streamlined Sales Tax Governing Board exists in order to simplify sales tax laws, making compliance simpler in its member states. They do this by discussing various taxable items and agreeing upon a common definition for them. There are currently 22 SST member states, so if you sell candy in multiple states, it’s critical to understand the SST definition. The tax rates will vary, but “bars, drops, or pieces” will be a consistent determining factor throughout.

In order to differentiate cookies from candy, SST states exclude candy containing flour from the rule. A Kit-Kat may be a bar, but because it contains flour it isn’t technically candy. That doesn’t just go for flour made from grains, either. Anything that says flour is flour, including nut-based flours. This is important because candy gets taxed at a different rate from other types of food in many some states.

This type of taxability rule can cause anyone who manages sales tax to second-guess everything they thought they knew about your old friends in the candy aisle. Kit-Kats you can see coming from a mile away. They’ve got a crispy wafer inside them that you can immediately connect to flour. But what about Twizzlers and most kinds of licorice? Turns out they almost always have flour too. The same goes for Cow Tails and even some kinds of cotton candy.

SST only means that states have agreed upon the definition of different products, but the decision of whether or not to tax it is made on a state by state basis. Avalara’s home state, Washington, for example, taxes candy as per the SST definition. If you bought Whoppers and a Snickers bar on your next visit to Seattle, the Whoppers, which contain wheat flour, would be exempt, and the Snickers would be taxed.  It’s clear that when it comes to candy, it’s easy to make a mistake.

Don’t let it get to you. Knowing these things will help you to catch your mistakes before an auditor does.  Addressing the complexity of sales tax laws can be difficult, so consider services like Avatax when evaluating whether your business is compliant. Getting information from the experts not only saves time, but it can keep you from going crazy looking for flour in the candy aisle.

photo credit: Pink Sherbet Photography via photopin cc