Candy: To Be or Not To Be

Define candy.

As a general rule, states don’t assess sales tax on food since a tax on food would severely impact the poor and contribute to malnourishment. And the sales tax exemption of food has historically included candy and soda — until now. More than a dozen states have passed or proposed a candy or soda tax this year.

Because cash-strapped states across the U.S. are confronted with severe revenue shortfalls, they’ve decided to punish our sweet tooth desires by imposing a tax on candy and soda to shore up budget deficits. The only problem is, no one in government can agree on the definition of candy. Seems simple enough for you and me, but not for teams of government bureaucrats.

So for instance, Snickers is candy, but a Snickers Cruncher is tax-free. A Butterfinger is candy. But Butterfinger Stixx with wafer center is not candy. A Twix, Kit Kat and Twizzlers, are all no longer officially considerd to be candy in Illinois. In New York, Ovaltine gets a sales-tax exemption but Tang does not. And in Iowa, pumpkins sold for pies were exempt from sales taxes, pumpkins sold for jack-o’-lanterns were not. The ruling led to protests and was eventually rescinded.

The Streamlined Sales Tax Governing Board was formed a decade ago for the purpose of streamlining sales and use tax in different states. To that end, the governing board created a Streamlined Sales and Use Tax Agreement. The agreement focuses on improving sales and use tax administration systems for all sellers and for all types of commerce. Today twenty-three states have adopted the simplification measures in the Agreement.

Previously, each state had its own definition of what candy is. “We had states that looked at Twix bars as a chocolate-covered cookie, and the state right next door … looked at that as a candy bar with a cookie center,” said Scott Peterson, executive director of the Streamlined Sales Tax Governing Board.

Scott Peterson said the organization struggled over how to define candy for tax purposes because many products that some states saw as cookies, other states saw as candy bars. “It finally came to us throwing up our hands and saying, ‘What in the world can we use as a definition that would be relatively straightforward and easy for a retailer to discern?’” Peterson said.

So how does Peterson’s organization define candy? If it’s got flour, it’s not candy. Licorice contains wheat flour, so it’s exempt from the tax. So are Milky Way bars, but not the Milky Way Midnight bar, which doesn’t contain flour.

The Chicago Tribune reports that Illinois is not a signatory to the streamlined tax compact. But Dave Vite, president of the Illinois Retail Merchants Association, said his trade group covets inter-state uniformity in tax laws and pushed lawmakers to adopt the compact’s definitions of candy and soft drinks when the tax issue was up for debate a few months ago.

“When you get a lot of people making the stew, you’re going to have a lot of ingredients, and sometimes it’s not perfect,” Vite said.