8 Puzzling Sales Tax Rules

States are seeking some official guidance

on whether take-and-bake pizzas are a prepared food or a
grocery item. In many places, the difference determines
whether these pies are subject to state sales tax (and also whether
they’re purchasable with federal food benefits).

At the moment, cooked pizza pies are generally taxed, while
uncooked take-and-bake pizzas often aren’t. But for clarification,
states have turned to the Streamlined Sales Governing
Tax Board (SSGTB), a group which provides sales tax
collection guidance for 24 states*.

The SSGTB will be handing down recommendations on take-and-bake
pizza later this week, it says. But the pizza issue is
just one of many silly puzzles the regulatory distinction
between groceries and prepared foods has created. What’s resulted
is a series of relatively arbitrary and absurd food
categorizations. Take-and-bake pizza aside, here are seven more
silly sales tax distinctions: 

Pumpkins: Many states exempt pumpkins from
sales tax if
they will be eaten but not if they will be carved. Effectively,
this means that medium-sized pumpkins tend to be exempted while
mini- pumpkins and gourds are considered decorations for sales tax
purposes. 

Candy bars: In 24 states, Hershey bars but
not Twix bars
are subject to sales tax, according to NPR. It’s because
of the presence of flour in Twix, which takes it from
taxable candy to non-taxable grocery item. In case
you’re curious, here’s a six-page
definition of candy from the SSTGB.

Baked Goods: In Texas, bakery
items are exempt from sales tax “unless sold with plates
or other eating utensils.” As an example, the state clarifies that
“a roll served in a restaurant with a meal is taxable even if the
roll is served rolled up in a napkin rather than directly on the
plate. However, the restaurant is not required to

Coconut Oil: It’s sometimes
taxed as a food, sometimes as a cosmetic, and sometimes as a
supplement. 

Ice cream cake: In Wisconsin, whether an ice
cream cake is taxable is a complicated issue. The
Wisconsin Department of Revenue explains that “generally, if a
person mixes ice cream and one or more other food items to form an
ice cream cake or ice cream bar, the retail sale of the ice cream
cake or bar is taxable as a sale of prepared food. If the ice cream
cake or bar is prepared by someone other than the retailer, it is
not taxable unless it meets one of the other prepared food
definition categories (e.g., furnished with utensils).” 

Paper cups: In Colorado, paper cups and
disposable containers are considered “essential” food items,
and therefore
exempt from sales tax. Napkins, straws, and plastic
utensils, however, get no such exemption.

Bagels: In New York,
there’s an 8 cent per bagel tax for “altering” bagels by
slicing, toasting, or adding spreads. 

“When you are looking at crafting these definitions, you are
looking at clear, bright line tests. You want to take the
subjectivity out of it,” Craig Johnson, the SSTGB’s executive
director, told NPR. He noted that it wasn’t easy, with more and
more foods straddling the line between prepared and unprepared.

In today’s Wonka-esque food world, how will regulators even
know what to tax anymore?!? Also prompting the question: Would
snozzberry wallpaper be sales tax exempt?

 *These states are: Arkansas, Georgia, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New
Jersey, North Carolina, Oklahoma, Rhode Island, South Dakota,
Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and
Wyoming