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Arkansas increases tax on candy and soda, January 2018


 If there's milk in it, it's not a soft drink in Arkansas.

To the dismay of the health-conscious, candy and soft drinks are currently considered “food and food ingredients” in Arkansas. As such, they qualify for a reduced rate of sales and use tax: 1.5 percent instead of 6.5 percent. But tastes change. Beginning January 1, 2018, candy and soft drinks will no longer be “food or food ingredients,” and will therefore be taxed at the regular state rate of 6.5 percent, plus applicable local taxes.

Ironically, taxes on the wholesale price of syrup used by beverage makers is set to decrease as soda taxes bubble up. The tax on soft drinks syrup and simple syrup, currently $2.00 per gallon, will drop to $1.26 on January 1. The rate “per gallon for each gallon of bottled soft drinks sold or offered for sale” will also drop slightly, from 21 cents to 20.6 cents. Simple syrup used in preparing tea drinks is exempt.

Candy

Arkansas defines candy as a preparation of honey, sugar, or other artificial or natural sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces. It does not include preparations containing flour, or foods that require refrigeration. So, while M&Ms will see a tax increase, Twix will not.

Soft drinks

A soft drink is defined as a nonalcoholic beverage containing artificial or natural sweeteners, but no milk, milk products, or milk substitutes like soy or rice milk. Beverages with greater than 50 percent of vegetable or fruit juice by volume are also not considered soft drinks. A bottle of Starbucks Caramel Macchiato Iced Espresso will likely continue to be taxed at the reduced rate because it contains milk, while diet colas should see a tax increase. See the Arkansas Department of Finance and Administration and Act 141 for additional details about the upcoming rate change for candy and soft drinks.

Soda taxes bubbling up everywhere

Nationwide, the soda industry is fighting soda tax increases. It has won several battles, most recently flattening a proposed soda tax increase in Santa Fe. Yet higher taxes on soda were approved in Cook County, Philadelphia, San Francisco, and several other cities in 2016 — the same year bottled water purchases among Americans surpassed soda purchases for the first time. While there’s no indication Big Soda is deflating, it is devoting more dollars to alternative beverages, such as Pepsi’s LIFEWTR and Coca-Cola’s milk line, fairlife, which benefits from “exceptional cow care.” Coca-Cola is also putting more money into international markets.

Every time a state alters the taxability of a product, businesses that sell that product must adjust accordingly. When the change involves soft drinks and candy, compliance may require reading labels. It’s a hassle.

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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.