Sales Tax Secrets: How to Tax Candy
- Sales and Use Tax
- April 11, 2013 | Christina Lengyel
Bars, drops, or pieces. Take a deep breath and repeat it. And again. That soothing mantra goes through my head whenever I'm determining product taxability in the candy section of a client's inventory. Interrupt it with a word like "chunk," and you're looking at a problem. Sneak flour into a candy that doesn't typically include it, and you might as well write off an afternoon on researching every similar candy to make sure that you haven't been taxing all of them wrong.
The phrase "bars, drops, or pieces" comes directly from the Streamlined Sales Tax (SST) definition of candy. The Streamlined Sales Tax Governing Board exists in order to simplify sales tax laws, making compliance simpler in its member states. They do this by discussing various taxable items and agreeing upon a common definition for them. There are currently 22 SST member states, so if you sell candy in multiple states, it’s critical to understand the SST definition. The tax rates will vary, but “bars, drops, or pieces” will be a consistent determining factor throughout.
In order to differentiate cookies from candy, SST states exclude candy containing flour from the rule. A Kit-Kat may be a bar, but because it contains flour it isn't technically candy. That doesn't just go for flour made from grains, either. Anything that says flour is flour, including nut-based flours. This is important because candy gets taxed at a different rate from other types of food in some states.
This type of taxability rule can cause anyone who manages sales tax to second-guess everything they thought they knew about your old friends in the candy aisle. Kit-Kats you can see coming from a mile away. They've got a crispy wafer inside them that you can immediately connect to flour. But what about Twizzlers and most kinds of licorice? Turns out they almost always have flour too. The same goes for Cow Tails and even some kinds of cotton candy.
SST only means that states have agreed upon product definitions; taxability is decided on a state by state basis. For a short time, for example, Avalara’s home state of Washington taxed candy per the SST definition. From June 1 through Dec. 1, 2010, purchases of Whoppers were tax exempt because they contained flour, while Snickers were taxed because they didn’t. However, as of Dec. 2, 2010, sales of all types of “candy” are exempt in Washington (except vending machine sales), even though the state’s definition of “candy” still excludes items that contain flour and don’t require refrigeration.
Don't let it get to you. Knowing these things will help you to catch your mistakes before an auditor does. Addressing the complexity of sales tax laws can be difficult, so consider services like Avatax when evaluating whether your business is compliant. Getting information from the experts not only saves time, but it can keep you from going crazy looking for flour in the candy aisle.