The most unique US sales tax laws
by October 6, 2023
Please note: This blog was originally published in 2018. It’s since been updated for accuracy and comprehensiveness.
One of the things that makes sales tax compliance mind boggling is how much the rules can vary from state to state. And when you start digging into all of these different rules, there are a few standouts. You might even call them downright weird. These are the laws that will have you cocking your head to one side and raising your eyebrows high. With sales tax, as with most things, we find it helps to keep a healthy sense of humor.
Let’s dig into some of the more unique sales tax laws.
The wizard of… sales tax laws
In Kansas, a hot air balloon ride where the balloon remains tethered to the ground is considered an amusement and thus subject to sales tax. But if the hot air balloon is untethered and free to roam about the sunny skies it becomes transportation and is not subject to sales tax. We like to think the Wizard of Oz was aware of this when he brought Dorothy and Toto back home tax-free.
Be careful with bagels
In states like New York, an uncut, perfectly round bagel is considered a grocery item and is not subject to state sales tax.
But as soon as someone slices that bagel in half? It’s prepared food, or food ready-to-eat and becomes subject to sales tax. So keep that in mind the next time you want to nosh. (We don’t recommend trying to slice your bagel yourself with one of those flimsy plastic knives, though. In that case, maybe the sales tax is worth it.)
The big Lebowski of sales tax laws
Pennsylvania is a great place for a shopping spree because clothing is tax exempt. Well, most of it. While your everyday clothing like shirts, pants and dresses are generally tax exempt, the state does make exceptions for items like formal clothing or costumes, and considers those types of “special” clothing to be taxable.
But this creates some oddness when it comes to things like sporting clothing. In Pennsylvania, if you were getting ready for that big bowling tournament, your bowling shirt would be tax exempt but your bowling shoes would be completely taxable.
When is a candy bar not a candy bar?
We already mentioned how “grocery” food is often non-taxable while “prepared” food (i.e. food ready-to-eat) is generally taxable. But how does a candy bar fit into all that? In most states, candy is considered a taxable ready-to-eat food.
But in states like Iowa, food isn’t considered “candy” if it contains a prime ingredient: flour.
So in Illinois, a Milky Way candy bar – which counts a tiny bit of wheat flour among its ingredients – is considered a non-taxable grocery item. But a Milky Way Midnight bar, which contains no flour, is subject to sales tax.
How are you going to use that pumpkin again?
In Pennsylvania, pumpkins are taxable. Or, oh wait, they are non-taxable. It just depends on how you’re going to use them.
If you plan on dumping your pumpkin in the cooking pot, it’s considered a non-taxable purchase.
But if you are buying a pumpkin with plans to carve some big ol’ teeth into it in order to scare kids come Halloween, then that pumpkin is considered a taxable expense.
Why these zany sales tax laws?
When it comes to weird sales tax laws, there’s actually a method to the madness.
You see, in the US, states are allowed to make their own sales tax rules and laws. States use the money collected via sales tax to pay for budget items like schools and roads. And they also use sales tax as incentives to encourage or discourage certain behavior. That’s why candy and soda are subject to sales tax in nearly every state, while grocery items that encourage preparing food at home are tax exempt in most states.
Here’s a key example. Back in the 2000s, Pennsylvania found that they were among the worst states in terms of personal computer adoption. With tech booming, state lawmakers feared that this would lead to the state falling behind economically. For that reason, the state began offering a tax break on personal computers during their annual sales tax holiday. See? When you look at it from a state’s perspective, these laws make sense.
Well… some of them.
If your head is swimming with all of these different sales tax regulations, and you’re ready to automate the process, reach out to our sales team.
