Is a tax on the American flag a tax on patriotism? – Wacky Tax Wednesday
- May 30, 2018 | Gail Cole
According to Maryland Comptroller Peter Franchot, “You can’t put a tax on patriotism.” That may be true. You can, however, put a tax on flags.
I’ve been thinking about the American flag lately. Our new office offers a grand view of Seattle, and when I take it in, I sometimes count the flags I see. I hadn’t realized so many were flown so regularly. Yet, according to the U.S. Flag Code (which is an interesting read), “The flag should be displayed on all days,” and especially on holidays and special events such as Inauguration Day, Mother’s Day, and Flag Day (June 14).
The Flag Code covers many issues, from the proper way to raise and lower the flag, to the use of the flag in advertising, apparel, commercial products, and jewelry. Nowhere does it address the taxability of the flag.
As tangible personal property, you might think flags would be subject to sales and use tax in 45 states and the District of Columbia (five states don’t have a statewide sales tax). However, just as individuals in this country have the freedom to purchase and display them, or not, states have the freedom to tax them, or not. And quite a few have chosen to not.
This prompted Ernst Hunter of Bloomberg BNA to wonder whether flag exemptions “run afoul of the First Amendment.” He writes: “If the sale of a flag is itself an act of speech, laws favoring the sale of certain flags over the sale of others are presumptively unconstitutional under the Speech Clause. If not, it would seem that sales tax exemptions for sales of the flag don’t violate the First Amendment.”
Perhaps the issue is a bit esoteric. To date, state sales tax exemptions for the American flag haven’t caused the controversy that burning it did in the 1980s, or taking a knee during the national anthem does today.
But for businesses that sell flags, knowing where they’re exempt and where they’re taxable is essential.
Sales of the listed flags are always exempt in the states below:
- Connecticut: Current U.S. and Connecticut flags
- Florida: U.S. flag and official state flag of Florida
- Maryland: American, Maryland, and POW/MIA flags
- Massachusetts: U.S. flag
- New Jersey: American and New Jersey state flags
- New York: American, New York state, POW, and military flags
- Pennsylvania: U.S. flag and the Commonwealth flag
- Rhode Island: U.S., Rhode Island, and POW/MIA flags
- West Virginia: Regulation-size U.S. flag and regulation-size West Virginia flag (for display)
- Wisconsin: U.S. flag and the Wisconsin state flag
Both New Jersey and Wisconsin clarify that in the separate sale of a flag banner, pole, etc., only the flag banner is exempt. However, if the banner, pole, and finial are sold as a bundled item for a lump sum, the sale is exempt.
The following states exempt certain flags under specific conditions:
- California: A nonprofit veterans’ organization may sell American flags free of charge when the profits are used “solely and exclusively in furtherance of the purposes of the nonprofit organization.”
- Tennessee: U.S. and Tennessee state flags sold by a nonprofit organization are exempt.
- Vermont: Sales of the U.S. flag to and by veterans’ organizations are exempt.
- Virginia: Sales by a government agency of the official flags of the United States, the Commonwealth of Virginia, or of any county, city, or town are exempt.
It’s got to be the real deal to get the real tax break: Most of the above states stipulate that the sales tax exemption only applies to official flags, not representations of flags on clothing, cups, etc. The Flag Code frowns on such representations anyway.
Having the freedom to tax and exempt sales is something the states seem to hold dear, yet differing taxability rules can complicate sales tax compliance for businesses — especially those making sales and collecting sales tax in multiple states. Tax automation software can help.