How do you find answers to sales tax questions? Wacky Tax Wednesday

If you’re not like Lloyd Dobler from “Say Anything” and your work involves buying, selling, or processing things, you probably sometimes have questions about sales tax. And since sales tax policies sometimes seem to make no sense, you probably know how frustrating it can be to find answers to sales tax questions.

This article takes you through just a few of the thousands of complicated (and sometimes wacky) tax code rules that vary by product and jurisdiction. Take clothing. Ask a simple question about the taxability of clothing and you may find a surprisingly complex answer.

Most clothing is exempt from sales and use tax in Pennsylvania, but the Keystone State does tax the following:

• Articles made of real or imitation fur “where the fur is more than three times the value of the next most valuable component material”
  
  • Felt, wool, or fabric that “resembles fur on the hide”
• Clothing or goods normally worn or used when engaged in sports
• Costumes
• Formal apparel (day or evening)

These are reasonably clear guidelines but they spark a number of additional questions.

For example: Exactly how should a seller determine whether the fur is more than three times more valuable than the next most valuable material? Since hunting is often categorized as a sport, why is hunting clothing nontaxable? How do you distinguish between an everyday (exempt) tie and a formal (taxable) tie?

Unless you automate sales tax compliance, you’ll probably need to scour the Pennsylvania Department of Revenue website to figure out which of the items you sell qualify for an exemption and which don’t.

Getting the tax right on clothing can also be challenging in New York.

The Empire State provides a state sales and use tax exemption for clothing and footwear sold for less than $110 per item or pair, as well as items used to make or repair this clothing.

However, this exemption doesn’t necessarily apply to local sales and use taxes in New York. Thus, as of September 2022, eligible products are exempt from state and local sales and use taxes in Chautauqua County, New York City, and approximately seven other local taxing jurisdictions. But local sales taxes apply to clothing that qualifies for the state exemption in Niagara County, parts of Westchester County, and approximately 50 other jurisdictions.

So, there’s that. There’s also the fact that some “items worn on the body” don’t qualify for the state or local clothing and footwear exemption even if they cost less than $110. Taxable items include:

• Costumes
• Rented formal wear
• Ice skates and roller skates

You can find all of the above information at the New York State Department of Taxation and Finance website. It just takes time and patience. 

Sales tax holidays can be another bugbear for retailers.

Say you sell clothing and are registered to collect sales tax in Arkansas and Missouri, both of which have a sales tax holiday for certain clothing. You’ll of course need to know which of the products you sell qualify for the temporary exemption. Does a $50 belt buckle qualify? A $110 scarf?

A relatively quick search on the Missouri Department of Revenue website finds that for the sales tax holiday, “clothing” is defined as “any article of wearing apparel intended to be worn on or about the human body.” However, “the term shall not include watches, watchbands, jewelry, handbags, handkerchiefs, umbrellas, scarves, ties, headbands, or belt buckles.” To qualify, eligible items must have a taxable value of $100 or less.

Your $50 belt buckle meets the price restriction but not the definition of clothing, and your $110 scarf doesn’t qualify on either count, so you’d have to continue to collect tax on sales of both those items during Missouri’s tax-free weekend.

The Arkansas tax-free weekend applies to “all human wearing apparel suitable for general use” that’s priced less than $100, including belts and scarves. But separately sold belt buckles are taxable, so while a $50 belt with a buckle would qualify for the temporary exemption, a buckle sold separately would have to be taxed. The $110 scarf would also have to be taxed because it exceeds the price cap.

There’s all sorts of product taxability pain associated with sales tax holidays, and sales tax holiday questions are actually some of the easiest to answer and understand. Often, a tax question that seems like it should have a simple “yes” or “no” answer can lead you into a rabbit warren of confusing sales tax laws, rules, and regulations.

California generally taxes hot prepared foods, and as you might expect, it considers coffee to be a hot prepared food. However, as explained in Regulation 1603, hot coffee sold for a separate price may be exempt under Regulation 1574.

Hot coffee sold to go would generally be taxable, but if a seller doesn’t meet the criteria of California’s 80-80 rule, hot coffee sold to go is generally exempt. 

The 80-80 rule is a gem. It applies when more than 80% of a seller’s gross receipts are from the sale of food products and more than 80% of the seller’s retail sales of food products are taxable. According to the California Department of Tax and Fee Administration, a seller meeting both criteria must collect tax on sales of cold food products, including sales of hot coffee, sold in a form “suitable for consumption on the seller’s premises” — even if it’s sold to go.

A seller meeting both criteria of the 80-80 rule could elect to separately account for to-go orders that could be consumed on-site. In this case, such sales could be exempt. You can find more details in How you take your coffee may affect its taxability.

It can be almost as difficult to figure out whether you need to apply Vermont sales tax to beverages.

Although many foods and beverages are exempt from sales and use tax in Vermont, tax applies to nonalcoholic beverages containing natural or artificial sweeteners. That is, unless they contain milk, milk products, or similar milk substitutes, or more than 50% of fruit or vegetable juice by volume.

Full-strength soda is unquestionably subject to tax, but what about flavored carbonated water or a product like Pedialyte? To determine the taxability of these products, you may need to examine the ingredients.

These are just a few of the questions businesses may need to answer every day. There are thousands more — many far more maddening and more difficult to untangle. And unfortunately, though states can hold you liable if you don’t get sales tax right, it’s not their job to ensure you’re aware of your tax obligations. That’s your responsibility.

Finding the information you need to be in compliance can be truly challenging. On state tax department websites, you generally need to know what you’re looking for, where to find it, and how to interpret it. You also need to keep your guard up, because what you find online may be out of date.

If you can find the legislation that established a tax policy, you can always seek answers in the law. But legalese can be hard to follow. Furthermore, lawmakers often task the tax authorities with clarifying compliance obligations, so there’s a good chance you’ll end up back at the tax department website. It can all be very frustrating and time-consuming.

Avalara Tax Research takes the frustration out of research, giving you easy-to-find, easy-to-understand answers to your toughest tax questions. It offers unlimited direct access to a robust database of tax answers and interprets ambiguous policies so businesses can easily find and understand comprehensive, relevant, up-to-date sales and use tax information. Try a two-week free trial now.