Taxing edible wearables – Wacky Tax Wednesday

We can celebrate Valentine’s Day by offering our true loves something edible, like a Forrest Gump box of chocolates. Or we can proffer a more romantic and wearable gift, like lingerie. Then there’s that strange combination of the two: edible wearables.

Let’s be clear from the outset: this is about sales tax. Never much of a romantic, as February 14 approaches I find myself wondering how sales tax applies to traditional — and more rarefied — Valentine’s gifts.

Taxing edibles

A box of chocolates is candy, and the taxability of candy is notoriously complex. In fact, the Streamlined Sales Tax Governing Board, which has a mission to “simplify and modernize sales and use tax administration in order to substantially reduce the burden of compliance,” spent years discussing how to define and tax candy. In the end, it decided that:

• “Candy” could be excluded from the definition of “food and food ingredients” (which are exempt in most states)
• Products containing flour and/or requiring refrigeration are not to be considered candy when determining taxability (e.g., a Hershey’s chocolate bar and a Twix would be treated differently)

So is that heart-shaped box of assorted chocolates taxable? It depends where you buy it. For example, Florida, New York, and Texas tax candy. A box of chocolates is also taxable in Illinois, where it is subject to the regular tax rate and not the reduced rate that applies to unprepared food and food ingredients.

However, candy is specifically exempt from sales tax in Arizona, California, and Pennsylvania. Candy is exempt from the state sales tax in Louisiana, but that exemption “does not apply to most local sales tax levies.” In Washington, candy was exempt until May 31, 2010, taxable from June 1, 2010 through December 1, 2010, and then made exempt again as of December 2, 2010. As of this writing, it is still exempt.

Feel like stress eating yet? Because there’s nothing like a box of chocolates for stress eating.

Taxing wearables

Lingerie is another popular gift on February 14, and like our box of chocolates, it’s exempt in some states and taxable in others.

Only a handful of states fully exempt most clothing: Minnesota, New Jersey, Pennsylvania, and Vermont. Cost is the deciding factor in three states, so whether tax applies or not depends on your taste:

• Massachusetts exempts the first $175 of the cost of many articles of clothing, including underwear
• New York exempts lingerie sold for less than $110 per item from state sales tax and from local taxes in certain (but not all) areas
• Rhode Island exempts the first $250 of the cost of underwear

In most other states, clothing is generally taxable. However, numerous states provide sales tax holidays for qualifying clothing. Connecticut, Iowa, Georgia, and Maryland specifically include lingerie in their lists of qualifying, exempt items.

Taxing edible wearables

Edible lingerie flummoxes me: Is it food or clothing? Here in Washington, is a candy G-string treated as exempt candy or taxable underwear? I can’t find any reference to edible underwear in Washington’s retail sales and use tax laws or on the Washington Department of Revenue website. And no, I don’t want to ask.

The perks of tax automation

If you’re a seller of candy bras, gummy panties, or edible thongs, you probably don’t blush when you talk shop. But if you’re of a more delicate disposition, tax automation can come in handy. There’s no need to have awkward conversations about the taxability of edible undies when you manage sales and use tax compliance with tax automation software.