Nicole Kaeding: Tax this but not that at Halloween, depending on where you live -- There is a lesson here

In New Jersey, baking pumpkins aren’t subject to sales tax, but carving pumpkins are. Massachusetts doesn’t subject carving or baking pumpkins to sales tax -- but if the pumpkin is pre-decorated, it’s hit with sales tax. Iowa exempts all pumpkins from sales tax -- but not decorative gourds.

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Welcome to the terrifying world of sales tax complexity.

When it comes to taxing Halloween treats, there is a lot of hocus pocus involved in determining what is and isn’t taxed, and pumpkins aren’t the only Halloween staple impacted. Taxation of Halloween candy can add some tricks to the treats.

For example, states often tax Snickers, but don’t tax Twix. The two delicious chocolate bars are taxed differently by an arcane policy that may seem like witchcraft. The presence of flour in Twix means it is costumed as food, leaving flourless Snickers out in the dark, since its lack of flour makes it candy and therefore taxable.

Our gluten-free friends aren’t sent to the tax graveyard, though. If their candy lists a “grain-free” flour, it is exempt, but items without a “grain-free” flour would be taxed.

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Some candy makers can get around the tax bite by bundling their candies. Putting Twix and Snickers into the same bag (and listing flour as an ingredient) will allow those previously-taxed Snickers to slither away from taxes.

Costumes are a tangled web of complex rules, too. Many states include clothing in their sales tax base, making costumes taxable. Others do not.

Texas makes another distinction. Costumes for kids are exempt, but not adults. Vermont’s tax collectors may be scared of your costume, but not your mask — that’s subject to sales tax. Georgia will allow your mask to escape taxation if it’s included with the costume as part of a set. Be careful when dressing up Fluffy as a werewolf, though — pet costumes are taxed in all of these states.

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The devil really is in the details. Forty-five states assess sales taxes on purchases within their state. In addition to setting the tax rate, states must determine what items are subject to the tax and which are not.

The lesson

These examples aren’t just silly tricks; they hit on a core concept. Taxes are complex.

The burden on retailers to understand and process these distinctions is high. Programming cash registers and training cashiers is costly, particularly for smaller mom-and-pop businesses who need to pour large amounts into their compliance cauldrons.

That money can’t be spent on investing in their businesses, their employees, or their communities — which makes us all worse off.

Dr. Frankenstein would be proud of the monster created by forcing small businesses to understand taxes in more than 11,000 sales tax jurisdictions, all with unique tax rates and tax bases. 

But it doesn’t stop there. Companies that sell online, particularly after the Supreme Court’s ruling in South Dakota v. Wayfair, need to know the rules not only in their state, but in the other 49 too. Dr. Frankenstein would be proud of the monster created by forcing small businesses to understand taxes in more than 11,000 sales tax jurisdictions, all with unique tax rates and tax bases.

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Instead of wasting the time, energy and effort to handle these complexities, the better potion would be to broaden state sales tax bases to include all products and use the revenue to lower rates on all products.

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States have made efforts to simplify their tax code, but there is still a long way to go. Saving consumers and businesses from dealing with these complexities would be a worthwhile step, leaving everyone a bit more time to wait for The Great Pumpkin.

Nicole Kaeding is the vice president of policy promotion at the National Taxpayers Union Foundation.