Size matters when taxing snacks in Texas — Wacky Tax Wednesday

It’s the time of year when bowls of candy and snacks materialize on every flat surface. When it’s impossible to avoid the candy aisle at the grocery store because the candy aisle is everywhere. When the saltiness of certain snack foods is inexplicably irresistible.

This always gets me to wondering how candy and snacks are taxed. A lot of states have fascinating sales tax laws for food in general, and snack foods and candy in particular.

States that are members of the Streamlined Sales and Use Tax Agreement (SST) define candy 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.” For SST states, preparations that contain flour or require refrigeration are not “candy.”

The way SST states define and therefore tax candy has raised a lot of eyebrows over the years. It’s why Arkansas taxes Kit Kat and Twix bars at a reduced sales tax rate but Snickers and Milky Way Midnight bars at the full sales tax rate, which is tricky. But Texas isn’t a member of SST.

Like several other states, Texas doesn’t consider candy to be a “food product.” So, while food products are generally exempt from sales tax, Texas taxes candy and gum:

• Bars, drops, taffy, and other confections made of natural or artificial sweeteners
• Nuts and fruits that have been candied, crystalized, glazed, or coated with chocolate, yogurt, or caramel
• Nuts roasted with a sweetener

This is relatively straightforward for sales tax law. More interesting is how Texas taxes snacks: They're either taxable or exempt, depending on their size.

What matters most for the taxability of snacks is not so much the ingredients as the size of the package.

Texas sales tax applies to “snack items” that are sold “in individual-sized portions.” Under Texas law, “individual-sized portion” means a portion that:

• Contains less than 2.5 ounces; or
• Is labeled as having not more than one serving

Snack items that are not sold in “individual-sized portions” are not taxable. This includes a bag or box containing multiple prepackaged, individual-sized snack bags.

I wandered over to the snack section and discovered that a 2.5-ounce serving is pretty generous for chips, popcorn, and the like. Most of the individually packaged snacks I saw weighed less than that, even though I’m pretty sure I can put away more than 2.5 ounces of popcorn in a single sitting when the mood strikes. Maybe that says more about me than Texas sales tax law.

In any event, a 3-ounce bag of popcorn would be taxable in Texas if the label identified it as one individual portion. If the same package contained two or more individual-sized portions, per the label, it would be exempt.

This wasn’t always the sales tax rule in Texas. Senate Bill 1151 added “snack items” to the sales tax code and specified that the state’s exemption for food products does not apply to individual-sized portions as of September 1, 2013. House Bill 1905, which took effect September 1, 2015, expanded and refined the list of snack items.

Not every food is considered a snack in the eyes of Texas. “Snack items” include bars of all sorts (except candy bars): breakfast, granola, nutrition, protein, sports, and yogurt. Snack mix and trail mix are also snacks, as are chips, crackers, corn nuts, hard pretzels, nuts (except pine nuts or candy-coated nuts), popcorn, pumpkin seeds, and sunflower seeds. And frozen yogurt, ice cream, ice pops, sherbet, sorbet, and the like are snacks — so long as they contain less 50% or less of fruit juice by volume.

Your standard snacks, basically. What you reach for when you feel a little nibbly. Which is how I’m feeling now.

With Halloween less than a week away, you want to be sure you’re taxing candy as required. Avalara Tax Research can help you find answers to a host of sales tax questions. Automating sales tax can save you even more time.