National Bacon Day – Wacky Tax Wednesday

The imminent arrival of National Bacon Day on Dec. 30 calls to mind my perennial pig predicament. Bacon lured me back to meat after more than a decade of vegetarianism: I find it almost impossible to resist. But pigs have personality and smarts; having known a few, it pains me to eat their brethren. So here I sit, conflicted. And hungry.

If eating bacon can be complicated, sales tax laws surrounding the production and sale of pork products can be even more so.

Farming exemptions

Although family and individually owned hog and pig farms are found in all states, the top producers are located in Iowa, North Carolina, and Minnesota.

Farmers are typically allowed a host of sales tax exemptions, which vary by state. For example, Iowa exempts many products involved in the production of livestock, including hog feeders. On the other hand, hog rings (put through the nose of a pig to lead it or prevent rooting) are always taxable.

As of July 2014, only qualifying farmers in North Carolina — those with an annual gross income of $10,000 or more from farming operations — are entitled to certain sales and use tax exemptions. However, the state also allows a conditional farmer exemption for nonqualifying farmers (i.e., those making less than $10,000 from farming operations). And while Minnesota allows a sales tax exemption for farm machinery and equipment, the exemption doesn’t extend to equipment or machinery used to process agricultural products (i.e., meat packers).

Food for human consumption

A majority of states exempt food purchased for home consumption, meaning groceries, not takeout. A handful tax groceries at a reduced rate: Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia. Only seven tax groceries at the full rate — Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma, and South Dakota — though four of these offer some sort of tax relief in the form of a credit or rebate.

Periodically there are calls to reduce or eliminate grocery taxes. In 2017, for example, the Idaho Legislature approved an exemption for groceries, though Gov. Butch Otter later vetoed it. Utah lawmakers have been calling for a reduction in the tax on food, and Tennessee recently succeeded in cutting the tax on groceries. However, it was decided last year that groceries should remain subject to the full rate of local sales tax in Juneau, Alaska.

Make no bones about it, keeping track of taxability rules in numerous states is taxing. Sellers of pork and other food products must be vigilant.

Taxing meat 

Products widely considered to be unhealthy (i.e., soda, tobacco) are sometimes taxed at a higher rate. The next target for a product-specific tax may be meat.

Years ago, People for the Ethical Treatment of Animals (PeTA) proposed “an excise tax on meat to help cover the health and environmental costs that result from using animals for food”: 10 cents per pound of pig and “other animal flesh sold in grocery stores and restaurants.”

With growing acceptance of the need to curb greenhouse gas emissions from livestock, The Guardian more recently reported that “’sin taxes’ on meat to reduce its huge impact on climate change and human health look inevitable.”

Maria Lettini, director of the Farm Animal Investor Risk and Return investor network, says, “On the current pathway, we may well see some form of meat tax emerge within five to 10 years.”

So enjoy your tax-free bacon while you can on National Bacon Day, if you live someplace where it is, in fact, exempt.

Learn more about food tax compliance.