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Iowa on Candy

  • Oct 21, 2014 | Gail Cole

 It's that time of year again.

Candy causes headaches, and not just because of the sugar. The way sales tax applies to candy is a lot like the way candy is made in Willy Wonka’s factory. In other words, it’s absurd.

Just ask anyone who participated in the Streamlined Sales and Use Tax (SST) Governing Board’s initial discussions about candy. SST was created to simplify sales tax, so that businesses filing in multiple states would have an easier time. Yet the SST Governing Board “struggled over how to define candy for tax purposes because many products that some states saw as cookies, other states saw as candy bars.” Scott Peterson, a participant in those discussions, said, “It finally came to us throwing up our hands and saying, ‘What in the world can we use as a definition that would be relatively straightforward and easy for a retailer to discern?’”

The answer was flour. Under SST, candy containing any type and any amount of flour is considered food and is tax exempt. This is why in SST states, Twix and Kit Kats are exempt, not taxed as candy. Read more about how SST defines candy for tax purposes.

SST states have to tweak their sales tax laws from time to time, in order to remain compliant with SST. That accounts for the slight change coming to candy in Iowa, or at least to the Iowa Code that explains how sales and use tax applies to candy.

The list of nontaxable items has been expanded to include “prepared fruit in a sugar or similar base.” It should have been on the list all along, but was “inadvertently omitted.”

New subrule 231.4(2), which replaces rescinded subrule 231.4(2), reads in pertinent part as follows:

  1. Taxable candy. Examples of items taxable as candy include, but are not limited to: preparations of fruits, nuts, or other ingredients in combination with sugar, honey, or other natural or artificial sweeteners in the form of bars, drops, or pieces; caramel-coated or other candy-coated apples or other fruit; candy-coated popcorn; hard or soft candies including jellybeans, taffy, licorice not containing flour, marshmallows, and mints; dried fruit leathers or other similar products prepared with natural or artificial sweeteners; candy breath mints; chewing gum; and mixes of candy pieces. …
  2. Nontaxable items. Sales of the following are generally not taxable as candy: jams, jellies, preserves, or syrups; frostings; dried fruits without added sweetener; breakfast cereals; prepared fruit in a sugar or similar base; ice cream or other frozen desserts covered with chocolate or similar coverings; cotton candy; cakes, cookies, and similar products covered with chocolate or other similar coating; and granola bars. However, these and similar items are taxable if sold as prepared food under rule 701—231.5(423).

The amendment takes effect on November 19, 2014--too late for Halloween but in plenty of time for Christmas.

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photo credit: Pahz via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.