Tax Treatment of Groceries, Candy, and Soda Can Get Tricky

by Janelle Cammenga, Tax Foundation, October 28, 2020

Even in 2020, jack-o’-lanterns and fake skeletons have popped up in neighborhoods as they do every October, although Halloween may look and play out differently this time around.

According to the National Retail Federation, fewer people plan on partaking in Halloween activities, but those that do expect to spend more than usual—and that spending includes candy.

In other words, there’s no better time for a Halloween-themed map looking at how different state sales taxes treat consumable goods like candy, groceries, and soda. Get a glimpse into the spiderweb of state requirements.

Some state definitions can make food and candy taxation counterintuitive. Twenty-four states align with the Streamlined Sales and Use Tax Agreement (SSUTA), which determines that candy is different from other sweet foods because it comes in the form of bars, drops, or pieces, and does not contain flour.

Base uniformity across states is good, but this particular definition leads to some interesting distinctions as we have noted in our Tax Policy 101 primer, "The Weird Ways Taxes Impact Behavior": If you bought a Hershey’s® bar, it would be subject to sales tax. If you bought a Twix® bar, it would be tax-free.

Similar conundrums appear when you get into the difference in definitions between prepared food and food intended for off-site consumption: a rotisserie chicken would be taxed if it’s heated by a warming device but untaxed if it’s packaged and refrigerated.

Ultimately, states and consumers alike would benefit from a low, single-rate sales tax that captures all final consumer products.

Such a tax would be easy to administer, providing a stable source of revenue through a neutral and transparent structure.

LINK: See table for more specific information on how groceries are treated in different states.