We write a lot of blogs! We’ve been writing a lot of blogs about the recent U.S. Supreme Court decision in South Dakota v. Wayfair and how companies selling goods online will be subject to much more compliance in upcoming months and years. But today, we decided to change it up and talk about something near and dear to everyone- food!
In most states throughout the country, consumers shopping at a supermarket don’t pay state sales tax on their bread and butter, but would pay sales taxes on a hot prepared turkey dinner. If they pick up a Hershey’s bar in the checkout line, is likely to be taxed, but if they pick up a Twix bar instead, it might be be exempt.
Isn’t it confusing to figure out which items are taxed in a grocery store and which items are not? In this article, we will try to break down those complex food tax laws and make sense of them. And just maybe you’ll think twice about that candy bar!
So Many Jurisdictions
There are 46 jurisdictions in the United States, including the District of Columbia, that apply sales tax to food items and there are many different definitions of what constitutes a food item. With so many entities that have their own definitions, food tax laws are bound to be confusing and complex. Most states classify a grocery item as something that is intended for human consumption. For example, pet food does not constitute a grocery item, so pet food is taxable in most states.
Ordinary Grocery items
One of the most prevalent sales tax exemptions among states pertains to grocery items. States that support grocery exemptions argue that taxing necessities like food and beverages is unfair to individuals with lower incomes, who spend a larger portion of their earnings on groceries than those with larger incomes. Thirty eight states and the District of Columbia have full or partial sales tax exemptions for grocery items.
But, there are some states that do tax all consumer goods. Often, in the case of groceries that tax is at a lower rate. A few of these states include Idaho, Illinois, Kentucky and Utah. For instance, Utah taxes grocery items at the reduced rate of 1.75%, but other food items are taxed at the regular state sales tax rate of 5.95%.
Prepared food is generally taxed in all states. A key term with prepared food is that it needs to be hot. Examples are deli sandwiches prepared and heated in the store. In Illinois, prepared food is taxable at the full rate of 6.25%, while grocery items are taxed at the low rate of 1%.
Other Items on Your Grocery List
As consumers do their grocery shopping, they often have other items on their list besides grocery items. These might include alcohol, soft drinks, candy, medication, and personal items. How are these taxed?
Alcohol is a universal item that is taxable in each state. In a previous blog, we talked about how beer and other alcohol is taxed.
Another item that is taxable in some states and exempt in others are soft drinks. Many states do subject soft drinks to state sales tax, as well as certain juice drinks that have less than 50% juice. This is true in Colorado.
Candy is one particular item that often poses many questions. Granola bars are also complex. Some states have provisions that if the food item is made with flour or wheat it determines whether it is taxable or not. So, it is important to read those labels!
Medication is another popular item on people’s grocery lists. Generally over-the-counter medication is taxed, but when it is prescribed by a licensed physician, medication is generally exempt from taxation. However, in some states even over-the-counter pain relief medication are exempt. Most personal items used for hygiene purposes are taxable. These include shampoo, soap, deodorant, and toothpaste.
And finally on your way out, you might pick up a case of water (generally exempt if still, but maybe taxed if carbonated), and a bag of ice, which is generally nontaxable in most states. For example ice is taxable in California and Idaho, where it is considered tangible personal property. It is also taxable in Utah, where ice sold by a food retailer that is crushed or cubed is considered food and is taxed at the low rate. However, ice sold in blocks or dry ice for cooling is not considered food and is sold at the general state rate. In summary, it is also important to note how you will be using your food products.
We’re here to help!
Due to the complex tax laws of groceries and other items among the states, it is helpful to consult with tax professionals, like Miles Consulting Group. Are you a grocer or otherwise selling food products? We can help with that. Or if you’re just a consumer of food- we thought you would find this interesting. Contact us for your multistate tax questions around food, technology products or other items.
