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Sales Tax

The Weirdest Sales Tax Laws of 2014

A rose may be a rose by any other name, but is a candy bar sales taxable or exempt as a food item? There are more than 8,000 sales taxing jurisdictions in the United States (states, counties, cities and special districts), and many of them find ...

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A rose may be a rose by any other name, but is a candy bar sales taxable or exempt as a food item? There are more than 8,000 sales taxing jurisdictions in the United States (states, counties, cities and special districts), and many of them find peculiar ways to classify the taxability (or non-taxability) of a variety of everyday items.

Some of the laws seem to be an attempt at rational thought (grocery items exempt, but fast food taxable), but in some cases there seems to be no rhyme or reason, such as in New York City, where a sliced bagel is taxable, but if left uncut, it is not. And when it comes to back-to-school sales, there are enough strange classifications to make even an auditor cringe.

The Tax and Accounting business of Thomson Reuters has released its latest round up of quirky sales tax laws for 2014. The annual report provides a snapshot of some of the more offbeat tax code regulations that have been passed or implemented over the calendar year.

“Each state’s tax codes are a web of intricacies, and even some of the stranger codes have the potential to affect businesses both large and small,” said Carla Yrjanson, vice president of tax research and content at Thomson Reuters. “Getting a complete picture of the tax landscape is important for all business owners, even if some of these laws seem quirkier than most.”

Sample highlights from the overview report include: 

  • Walking in a Taxable Wonderland: If California residents want a white Christmas, it requires artificial snow. But since this is a manmade product, it is subject to tax, unlike the real deal. According to California code, the manufacture of artificial snow at a customer’s site is considered a sale of tangible personal property. The true object desired by the customer is the snow, and not the service of making the snow, making it a product subject to sales tax.
  • Space – Alaska’s Untaxable Frontier: Alaska has created a blanket sales and use tax exemption for goods and services related to space flight, as well as any tangible personal property (TPP) that is launched, or intended to be launched, into space, regardless of whether it returns to Earth. Thus, an elegant Alaskan tax dodge involves telling Amazon to ship all your purchases via low-Earth orbit.
  • Washington Denies Marijuana Food and Agriculture Tax Exemption: Even though Washington voters legalized the recreational use of marijuana, recent tax law written by the state’s Department of Revenue intends to remove any economic incentives to buy or cultivate the product. Washington regulators have declared that, for sales tax purposes, marijuana is neither a food ingredient nor an agricultural product. As a food ingredient or agricultural product, it would have enjoyed an exemption from sales tax. Instead, it is subject to not only sales tax, but also a 25 percent excise tax at wholesale and retail.
  • Tax Holidays for Health, But Not for College Meal Plans: In North Carolina, college students are now required to pay sales tax on university meal plans, making the pitfalls of the dreaded “freshman fifteen” even more painful. But if you’re headed back to Washington, DC for winter break, don’t worry. Personal trainers hired by an individual in the District are not subject to tax if separately stated from taxable charges at the time of transaction.

The research division at the Tax & Accounting business of Thomson Reuters continually monitors regulatory developments around the world so the thousands of new rules and rates enacted each year are reflected in the company’s indirect tax software platform. ONESOURCE Indirect Tax is used by leading global companies to seamlessly and accurately comply with tax regulations.