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Monday, October 31, 2016

Halloween Taxation Tricks and Treats

Halloween has become big business in the past several years. USA Today reported that per the National Retail Federation, folks in the U.S. will spend over $8 billion on Halloween or almost $83 per shopper! ["Americans to spend $82.93 per shopper on Halloween," 9/22/16]

Do states generate sales tax revenues from this consumption?

  • Costumes - Yes. However, a few states, such as Minnesota, exempt clothing. But, Minnesota taxes costume masks if sold separately from a costume. Note: I'm not making this up to scare you. Check out Minnesota Department of Revenue's Fact Sheet 105.  Pennsylvania also exempts clothing, but not costumes. So, in most states, you'll pay sales tax on your costume. In Minnesota, you don't pay sales tax on the costume unless you buy a mask separate from the costume. In Pennsylvania, you'll pay tax on a Superman costume, but buy a suit and trick or treat as a CPA and you can avoid the sales tax. You can also avoid sales tax in Pennsylvania on your costume if it is a Girl Scout or Boy Scout uniform!
  • Pumpkins - No. Most states don't tax food and even if you take it home and don't eat it, it will be treated as non-taxable food in most states. Per the Federation of Tax Administrators, only a few states impose sales tax on food and usually at a lower than normal rate.
  • Candy - It varies among states. California and other states treat this as food and it isn't taxable. However, Texas, Minnesota and a few other states remove candy from the food  category and make it taxable. So, is all of the candy you give to trick-or-treaters taxable candy? Not necessarily. In Minnesota, for example, if the item has flour in it, such as KitKat bars (my favorite), it is not candy and is instead an exempt food!  One of the bags of candy I purchased had a mix of KitKats and other candy that has no flour.  I'm guessing such bags are not sold in Minnesota and instead, the bags of non-taxable candy are separated from the taxable bags.
  • Admission charge to a haunted house or pumpkin patch - Many states will treat this as a non-taxable service, but other states, such as Texas, tax amusement services.

So, yes, states will generate sales tax because of Halloween. Could they generate more than they do today? Yes, perhaps candy should be taxed in all states. I hate to say this on Halloween, but the usual rationale given for not imposing sales tax on food is that it is a necessity of life.  But, candy really isn't so could be subject to sales tax. But, defining it is a challenge, as illustrated by Minnesota that used the typical definition of it not having flour which is not true of all candy, such as KitKats.

What do you think?


L. Carpenter said...

I think you have just pointed out, very subtly, the complexity of complying with the sales tax laws of various states, as well as the complexity of doing business as a national (or international) company -- imagine having to put together special bags of candy for specific states! I'm also thinking Minnesota sounds like an unfriendly place to live, tax-wise.

Thank you for an interesting article.

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