How a PR problem grew into a sales tax issue – Wacky Tax Wednesday
Dried cranberries have a public relations problem. They’re packed full of antioxidants and nutrients, but because they’re extremely tart, they’re typically sweetened. This has caused them to be categorized — and taxed — as “candy” in approximately half of the United States.
Wisconsin, the world’s top producer of cranberries, thinks it’s time for that to change. But since Wisconsin is a member state of the Streamlined Sales and Use Tax Agreement (SSUTA), it can’t simply exempt dried cranberries while continuing to tax most other candy. It needs the Streamlined Sales Tax (SST) Governing Board to be on board with the change.
The SST isn’t some sort of sales tax mafia. It was created to make sales tax compliance less burdensome and costly for businesses. This is achieved, in part, by requiring member states to have uniform tax base definitions and rules.
There are currently 24 SST member states, including Wisconsin. Though each state defines “candy” the same way for tax purposes, not all tax candy the same. Some states, like New Jersey and Wisconsin, apply the general sales tax rate to candy, while others, like Michigan and Nebraska, exempt candy from sales tax. Either way, they treat dried cranberries like a bar of milk chocolate.
Bars, drops, or pieces made with sugar or other sweeteners are “candy”
The SSUTA currently defines “candy,” in part, as “a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces.”*
Dried cranberries fall into this category due to their tart nature; they almost always contain additional sweetener(s), typically sugar. It’s also common for some sort of oil to be added to prevent them from clumping like their naturally sweet, clumpy cousins, the raisin. Therefore, they end up meeting the definition of “candy” and being taxed as such.
Seeking to change this, Wisconsin introduced a motion “to allow states to exclude certain products from the definition of ‘candy’ contained in Part II of Appendix C of the SSUTA” at the SST Governing Board Annual Meeting earlier this month.
Let the negotiations begin
Wisconsin initially proposed the following amendment: “A member state may exclude from its definition of ‘candy’ a preparation that only contains a combination of dried or partially dried fruit, sugar, and a sweetener or combination of sweeteners. The exclusion does not apply to a preparation that includes chocolate, nuts, or other ingredients or flavorings. For purposes of this exclusion, nuts are not considered fruit.”
After discussing the matter, a revised amendment was proposed: “A member state may exclude from its definition of ‘candy’ a preparation that contains dried or partially dried fruit and one or more sweeteners, and may contain oils, natural flavorings, fiber and preservatives. This exclusion does not apply to a preparation that includes chocolate, nuts, yogurt, or a preparation that has a confectionary coating or glazing on the dried or partially dried fruit. Dried or partially dried fruit does not include fruit that has been ground, crushed, grated, flaked, pureed, or jellied.”
The revised amendment would further ensure dried cranberries, which often contain oil, could be pulled out from the definition of “candy.” Yet it still prevents states from excluding chocolate-covered and yogurt-covered raisins or nuts from the definition of candy.
Will the cranberry be vindicated?
The SST Governing Board plans to review this proposed amendment, as revised, in December. If it’s adopted, Wisconsin and other SST member states will be able to exempt dried cranberries like Craisins while continuing to tax chocolate bars and other “candy.” If they so choose.
One argument for allowing for the exemption comes from a 2009 advisory opinion issued by the New York State Department of Taxation and Finance that determined, “‘Craisins’ are not a candy or confectionary subject to sales tax.”
The department wrote: “We accept … that the process of infusing the dried cranberries with a sugar solution is a process distinct from merely coating an otherwise exempt food item with sugar or chocolate. The infusing process sweetens naturally tart cranberries so that they are suitable for consumption as a snack or baking supply, but it does not make the cranberries candy or confectionary.”
Although New York isn’t an SST member state, it makes a sound argument. Sugar isn’t added to cranberries to turn them into an irresistible candy. It simply makes edible a product that would otherwise be hard to swallow.
According to Scott Peterson, vice president of government relations at Avalara, “Candy as a concept is hard to define. Chocolate can be a coating, an ingredient, a filling, or the only thing. The same can happen with some kinds of sweeteners.” He would know, having helped draft SST’s definition of candy while executive director of the Streamlined Sales Tax Governing Board.
Peterson goes on to explain why uniform definitions are essential, as well as why they shouldn’t be carved in stone: “It’s important that SST definitions be changeable over time as products change. It’s critical that a definition be so clear that a retailer doesn’t have to call a department of revenue but can look at the item’s ingredients and immediately know whether the product is candy.”
For now, SST states must treat cranberries as candy
Unless and until the SST Governing Board decides to adopt the amendment proposed by Wisconsin, dried cranberries must continue to be treated as candy for sales tax purposes in SST member states. So, move over M&Ms — this tart little treat deserves a spot on the Halloween candy shelves. Candy sales are up in 2020, even though traditional trick-or-treating likely won’t happen because of the pandemic.
Check out our state-by-state guide to sales tax on candy (just in time for Halloween) to learn which states tax candy and which states exempt it. And to learn how registering through SST can streamline tax compliance, visit our Streamlined Sales Tax Questions Answered page.
*Though not entirely relevant for this discussion, it’s worth noting that “candy,” as defined by the SSUTA, “shall not include any preparation containing flour and shall require no refrigeration.”
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