Baby blues: taxing essentials – Wacky Tax Wednesday

Last updated 9.14.2016

If you’re looking for a way to liven up a summer barbecue, try throwing this question into the mix: should sales tax apply to diapers and sanitary napkins?  A lively debate will (almost) certainly ensue, as has happened in state legislatures from coast to coast.

Essential vs. neutral

Members of the “no” camp generally argue that it is wrong to tax items essential to the health and well-being of certain segments of the population. Families with young children and menstruating females must purchase diapers and feminine hygiene products, period; and for struggling households, the added cost of sales tax is a hardship (30% of low-income families reportedly have trouble paying for diapers).

On the flip side is the argument that taxes should be “neutral,” relying on a broad base and a low rate to tax all products — even essential ones — equally but without burden. This is a theory that even a menstruating mom can espouse. In regard to an Illinois measure to provide a reduced sales tax rate for diapers, one mom of three diaper-wearing tots praised the Tax Foundation’s Principles of Sound Tax Policy, which reads, in relevant part:

“The primary purpose of taxes is to raise needed revenue, not to micromanage the economy. The tax system should not favor certain industries, activities, or products.”

As is typically the case when it comes to taxes, there’s no easy answer. Or at least there’s little consensus. To date this year, exemptions for these items have been discussed, approved, and abandoned.

Approved

• Connecticut exempts feminine hygiene products and diapers beginning July 1, 2018.

• Illinois Senate Bill 2746, which exempts menstrual pads, tampons and menstrual cups from sales and use tax, takes effect on January 1, 2017. (This spring, the Council of the City of Chicago unanimously voted to exempt these products from Chicago's Home Rule Municipal Retailer’s Occupation Tax.)

• On July 21, 2016, New York Governor Andrew Cuomo signed legislation exempting feminine hygiene products from state and local sales taxes. The governor called it “a regressive tax on essential products that women have had to pay for far too long,” and added that “lifting it is a matter of social and economic justice.” The exemption takes effect on September 1.

Diapers are currently taxable in Illinois but exempt from New York state sales tax under the state clothing exemption (local tax applies in some jurisdictions).

Under consideration

Measures are still alive California, Ohio, Rhode Island, Tennessee, and the District of Columbia.

• California's proposed exemptions for diapers (AB 717) and feminine hygiene products (AB 1561) would be temporary, remaining in effect until January 1, 2022. The author’s statement in support of exempting menstrual products reads in part: “Tampons and sanitary napkins... are essential health items for women. As a state we should not be taxing women for being born women.” The statement in support for exemption diapers is similar: “It is time for California’s tax code to reflect the fact that diapers are an absolute health necessity for young children.” Statements opposing the exemptions are primarily based on fiscal concerns (the state needs revenue).
  • Governor Brown vetoed both bills on September 13. Learn more.

• DC-B696 would exempt feminine hygiene and diapers from the District’s sales and use tax. Bill sponsor Anita Bonds says, “Women should not be taxed because they’re women, nor should babies be taxed for being babies.” Adding fuel (or at least outrage) to her argument is the fact that the District exempts Viagra as an essential item (The Washington Post). The District currently exempts diaper services.

• Bills in Ohio and Tennessee would exempt both feminine hygiene products and baby diapers from sales and use tax, and a Rhode Island measure that has been held for further study would exempt feminine hygiene products.

Abandoned

This session, the following states considered but rejected legislation exempting feminine hygiene products, diapers, or both: Michigan, Mississippi, Utah, Virginia, and Wisconsin.

Existing exemptions

A handful of states (in addition to the five states that have no general sales tax) already exempt children’s diapers, menstrual products, or both.

• Maryland: adult diapers only
  • Tampons and sanitary napkins
• Massachusetts: diapers (cloth and disposable, child and adult)
  • Feminine hygiene products
• Minnesota: diapers (cloth and disposable, child and adult)
  • Tampons, sanitary napkins and panty liners
• New Jersey: diapers (cloth and disposable, child and adult)
  • Tampons
• New York: diapers (cloth and disposable, child and adult) are exempt from state sales tax but local tax applies in some jurisdictions.
• Pennsylvania: diapers (cloth and disposable, child and adult)
  • Sanitary napkins, tampons and similar items
• Rhode Island: diapers (cloth and disposable diapers, child and adult)
• Vermont: diapers (cloth and disposable, child and adult)

In addition, diapers are exempt from sales and use tax during sales tax holidays in Alabama, Arkansas, Connecticut, Florida, Georgia, Iowa, Louisiana, Missouri, New Mexico, North Carolina (sales tax holidays have been repealed), Oklahoma, South Carolina (baby diapers only), Tennessee, Texas, Virginia, and West Virginia.

Into the rabbit hole we go

Looking into taxable and nontaxable items is a bit like falling into Alice’s rabbit hole. Many states allow a sales and use tax exemption or reduced rate for certain essential items, but there is little consistency in the items considered essential.

In Connecticut, for example, disposable and reusable diapers for children are subject to tax but adult diapers are exempt. Maryland exempts adult diapers, baby oil and baby powder but not baby diapers. In Wisconsin, disposable and cloth diapers are taxable but diaper cleaning services are exempt. “Curiouser and curiouser!”

Curiosity aside, the varying taxability of these items is a hassle for businesses that sell them in multiple states. Sales tax software (SaaS) makes compliance simpler. Learn more.