Did sales tax kill the May Day basket? Wacky Tax Wednesday
Although I’ve been a fan of May Day since I first heard Vanessa Redgrave as Guinevere tra-la-la-ing about “The Lusty Month of May” in Camelot, I don’t typically celebrate it. Most people I know don’t. Yet it was once common to fête May 1 by hanging a basket of flowers and treats on the doors of friends and family. Perhaps the tradition died because of how difficult it can be to determine the taxability of gift baskets.
Pick apart that basket
Ohio law states, and the Ohio Department of Taxation reiterates, that “sales tax is due on the total price paid when the amount for a taxable item is not separately stated from the amount for a nontaxable item.” If the seller separately states the price of taxable items, that amount is taxed while the rest is exempt. Common nontaxable gift basket items include fruit, candy, and cheese. Common taxable items include flowers, toys, wine, and the basket itself, if it’s “decorative in nature.”
What makes a basket “decorative in nature?” According to the department, “A basket or container is considered ‘decorative in nature’ when [it] has a value greater than the item(s) contained within, or the true object of the purchaser is the acquisition of the basket or container instead of the item contained within.”
The department provides three examples:
- A lead crystal candy dish full of candy is considered a decorative container because the dish is more valuable than the candy it contains (though a child recipient might disagree).
- A simple fruit basket full of exempt candy or fruit would be exempt “because the true object sought would be the food items … not the basket. The basket would be considered part of the package.”
- A fruit basket containing wine would be fully taxable unless the wine was separately stated. If separately stated, the wine would be taxable, but the basket and the fruit would be exempt.
Skip the wine
Connecticut allows a gift basket retailer permit holder (that’s a thing) to make retail sales of wine to be consumed off premises, with restrictions. The “holder of a gift basket retailer permit” can include no more than four bottles of wine per basket, and such baskets can only be sold “during the times permitted for the sale of alcoholic liquor in places operating under package store permits …” Furthermore, Connecticut vendors of gift baskets with wine must pay an annual fee of $100. If they sell to consumers in other states, they must “clearly and conspicuously state [their] gift basket retailer permit number in [their] advertising.”
Do the math
Gift basket sellers in Minnesota are permitted to use either the purchase price of taxable items or the sales price of taxable items to determine taxability. If either is more than 50 percent of the total purchase or sales price, the basket is taxable. If less, the basket is exempt. The Minnesota of Revenue reminds that “sellers cannot use a combination of the purchase price and sales price when making the 50% determination for the transaction.”
Additionally, sellers must remit use tax on the “cost of taxable items included in the bundle if the retail sale of the bundled transaction is not taxable, and the seller’s purchase price of all taxable items in the bundled transaction is more than $100.” [Emphasis theirs.] Confused? The Minnesota Department of Revenue provides a few clarifying examples.
Likewise, gift baskets in New Jersey are exempt if the value of exempt items is greater than the value of taxable items, and taxable if the reverse is true. Sellers may base the value on either the cost or sales price of each item, but they can only use the sales price if they “actually sell the individual items separately in addition to selling them as part of a bundle.”
The law is a bit different in California, where the price of the contents of baskets containing both taxable and exempt items must be separately stated if the seller has records verifying their cost, and “the retail price of the nonfood product is more than 10 percent of the retail value of the entire package, not including the container.” [Emphasis theirs.]
If the California seller doesn’t have records proving the cost of the individual items, tax generally applies to the retail sales price of the whole basket, including the value of the container, if “the retail value of the nonfood product exceeds 10 percent of the retail price of the entire package, not including the container,” and the seller doesn’t “have records to establish the cost of the individual items of the combination package.”
Furthermore, whether the seller has or doesn’t have records verifying the cost of individual items, a gift basket is nontaxable if “the retail value of the nonfood products is 10 percent or less than the total value of the contents (not including the container), and the container’s retail value is 50 percent or less of the entire package value.”
Confused? So am I, which is why I’m more convinced than ever that sales tax killed the May Day basket.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.