Taxing the great candy haul – Wacky Tax Wednesday

Updated 10.8.2019

My son is getting old for trick-or-treating, but he’s not about to stop. Last year, he and his friends each hauled in 7 pounds of candy in a few short hours of pounding the pavement (we weighed it). Considering the hundreds of children who knocked on our door last Halloween, and the millions of households in this country, a staggering amount of candy must have been sold in preparation for Halloween. How much of it was subject to sales tax?

Candy is (generally) taxable

Candy sales are generally taxable in a majority of states: Alabama, Arkansas, Colorado, Connecticut, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Mississippi, Missouri, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin.

However, there are caveats. There are almost always caveats in the world of sales tax. Missouri, Utah and Virginia tax candy sales at a reduced state rate, plus applicable local taxes.

Candy taxability is even more complex in Arkansas. It used to be subject to a reduced rate of tax because it was considered a food or food ingredient, but the Arkansas Legislature removed candy and soft drinks from the definitions of “food” and “food ingredients” as of January 1, 2018. Thus, candy and soft drinks are now subject to the full tax rate, which is comprised of the 6.5 percent state rate plus applicable local taxes.

Except some candy in Arkansas is exempt.

“Food sold through vending machines” is exempt from Arkansas sales tax. And candy containing flour or requiring refrigeration isn’t considered candy, so it’s generally taxed at the reduced rate reserved for “food” and “food ingredients” (1.5 percent, plus applicable local taxes).

However, candylike foods containing flour or requiring refrigeration are taxed at the full state sales and use tax rate if they’re considered to be a prepared food. And that depends on how they’re sold. For example, candy sold at a concession stand is a prepared food if more than 75 percent of the seller’s sales are sales of prepared food and utensils are made available. Scary, huh?

Candy is (generally) exempt

For the most part, candy is exempt from sales and use tax in the following states: Arizona, California, Georgia, Louisiana, Massachusetts, Michigan, Nebraska, Nevada, Ohio, Pennsylvania, South Carolina, Vermont, Washington, West Virginia, and Wyoming.

The exceptions:

Georgia: Candy is generally exempt from state sales tax but subject to local taxes when sold to an individual (not a business) for off-premises human consumption. Local tax may also apply to candy sales in Louisiana.

South Carolina: Food “eligible to be purchased with USDA food stamps” is exempt from state sales tax, but only if “sold for home consumption.” The South Carolina Department of Revenue doesn’t address candy sales specifically, but it does explain that although bottled soft drinks qualify for USDA food stamps, bottled soft drinks sold at a concession stand at a festival would be subject to state sales tax because they’re “sold for immediate consumption and not home consumption.” Local sales and use tax may or may not apply to candy sales, depending on the jurisdiction.

Into the rabbit hole

Candy in the District of Columbia defies easy categorization. According to the D.C. Office of Tax and Revenue (OTR), candy used to be subject to the “snack tax,” but as of June 9, 2001, “food (excluding food or drink prepared for immediate consumption) sold at convenience and grocery stores is exempt from sales tax. Snack foods sold by restaurants, carryouts, vending machines, and other non-grocery establishments remain taxable.” Make of that what you will. 

The Tax Foundation notes that while groceries are exempt from sales tax in Washington D.C., candy isn’t taxed the same as groceries. 

Americans are expected to spend approximately $2.6 billion on Halloween candy this year. That’ll boost sales tax revenue in more than half of the states, and some localities.

It may also remind vendors of candy that sales tax compliance can be frighteningly complex. Learn how one retailer coped.