Holy Guacamole! – Wacky Tax Wednesday
- Sales and Use Tax
- September 6, 2017 | Gail Cole
Get out your avocado mashers and buy corn chips in bulk: Sept. 16 is National Guacamole Day.
The largest serving of guacamole ever prepared at once — three tons — was made last weekend in the Mexican town of Concepcion de Buenos Aires. Comprised of 25,000 avocados and mashed by a cast of 1,000, it certainly whet my appetite for National Guacamole Day.
I normally get my guac one of three ways: I purchase the ingredients and make it myself, I buy it premade from a store or food bar, or I eat too much of it at a Mexican restaurant. From state to state, each option affects the taxability of guacamole differently.
Whenever possible, I make guacamole from scratch. Both California and my home state of Washington exempt “food and food ingredients.” Washington defines food and food ingredients as “substances … that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value” (guacamole has both). This exemption doesn’t extend to sales by caterers, food service contractors, restaurants, and the like.
Whether you make your own guacamole or purchase it off the shelf, the full sales tax rate applies in Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma, and South Dakota. A reduced rate applies to sales of avocados and guacamole in Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia. Like California and Washington, most remaining states exempt sales of food and food ingredients. However, taxability can be a moving target: Tennessee recently reduced the rate of tax on food and food ingredients, Utah lawmakers periodically consider increasing it, and Kansas legislators often discuss reducing the rate — or even exempting fresh foods altogether
No state sales tax applies to guacamole and avocados in the five states that have no general sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, local tax may apply in Alaska. Even more confounding, the local tax rate may fluctuate with the seasons. For example, Kenai Peninsula Borough levies a 3 percent consumer’s sales tax on all retail sales, rents, and services, including most sales of food. Homer, Kenai, Seward, and Soldotna levy additional local taxes at varying rates, which remain the same year-round. But in Seldovia, the additional local tax is 5 percent October through March, and 7.5 percent April through September.
From the food bar
Many food markets these days contain hot and cold food bars, and special tax rules frequently apply to these sales. In California, hot prepared food items such as a heated slice of pizza or a sizzling piece of fried chicken are generally taxable, while cold prepared food items are not. Since guacamole is served at room temperature or chilled, it would normally be exempt. However, were it to top a warm burrito or taco, the combined sale of the hot and cold items would be taxable.
Furthermore, a California grocery store that contains seating for the public and sells food “in a form for consumption” must charge tax on those sales no matter their temperature. If food can be sold to go or for consumption on premises, sales “for here” must be taxed while sales “to go” are exempt — and excellent records must be kept in case of audit.
From a restaurant
Sometimes, nothing hits the spot quite like dining at a favorite Mexican restaurant. Most states, even states without a sales tax like Delaware and New Hampshire, tax sales of prepared food, and at least 15 cities impose an additional tax on restaurant meals. From coast to coast, the taxability of prepared food can be notoriously complex.
Furthermore, tax can be complicated when a business doesn’t solely sell prepared food. In Missouri, where a reduced tax rate applies to all food items eligible for food stamps, the full rate applies to sales by any business “where the gross receipts derived from the sale of food prepared by such establishment for immediate consumption constitutes more than 80% of the total gross receipts of that establishment.” Typically, percentages need to be calculated in bakeries and similar businesses that sell a lot of items not for immediate consumption, but it could conceivably apply to a Mexican restaurant that sells bags of chips or tortillas, or tubs of guacamole.
Whenever you need a calculator to determine if you even have to charge sales tax, you can bet compliance will be challenging.
Just eat it
Businesses that sell guacamole need to understand its taxability, and tracking product taxability is complicated. Fortunately, tax automation software can deliver compliance down to the SKU.
The rest of us just get to enjoy it. And really, it doesn’t matter where you get your guac on National Guacamole Day — or if you have to pay tax on the sale — so long as you get it.