Last week, I (guiltily) indulged in several pieces of chocolate and sour pieces of candy on Halloween because, hey, kids can’t have all the fun. According to a survey by the National Retail Federation, Americans were expected to drop $2.6 billion on candy this past holiday—accounting for 95% of consumers’ planned Halloween purchases.
I mooched the candy off of a friend, so she was responsible not only for the cost of the candy but also for paying the tax on the candy. In Minnesota, groceries are fully exempt from the state’s sales tax base, but candy is treated differently than groceries and is therefore not included in the exemption. This sales tax treatment of groceries and candy varies from state to state. The Tax Foundation has the breakdown:
Forty-five states and the District of Columbia levy a state sales tax. Of those, thirty-two states and the District of Columbia exempt groceries from the sales tax base. Twenty-three states and D.C. treat either candy or soda differently than groceries. Eleven of the states that exempt groceries from their sales tax base include both candy and soda in their definition of groceries: Arizona, Georgia, Louisiana, Massachusetts, Michigan, Nebraska, Nevada, New Mexico, South Carolina, Vermont, and Wyoming.
While 32 states exempt groceries, six additional states (Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia) tax groceries at a lower, preferential rate. Four of those six states include both candy and soda in the rate applied to those lower-taxed groceries. Arkansas and Illinois exclude soda and candy from the tax preference, taxing them at the standard rate.
But “some state definitions can make food and candy taxation counterintuitive,” the Tax Foundation continues.
Twenty-four states align with the Streamlined Sales and Use Tax Agreement (SSUTA), which determines that candy is different from other sweet foods because it comes in the form of bars, drops, or pieces, and does not contain flour. Base uniformity across states is a good thing, but this particular definition leads to some interesting distinctions: If you bought a Hershey’s® bar, it would be subject to sales tax. If you bought a Twix® bar, it would be tax-free.
Minnesota is one of the states that aligns with the SSUTA. Along with the criteria stated above, if an item requires refrigeration, it is not considered candy and is therefore not taxable. An example of this would be ice cream bars. However, if the candy is sold frozen but does not require refrigeration, it is still taxable. Cotton candy is also taxable because even though it is commonly thought of as candy, it is not sold in the form of bars, drops, or pieces.
According to the Tax Foundation, the claw back of the grocery exemption for certain consumable goods makes sales tax administration unnecessarily complex and erodes the efficiency and effectiveness of state sales tax systems. The solution? “…[A] low, flat-rate sales tax that captures all final consumer products. Such a tax would be easy to administer, providing a stable source of revenue through a neutral and transparent structure.”