Sales Tax Slice: Vermont Might Tax Candy—Good & Plenty State Revenues, But Determining What Counts Could Cause Stomach Aches

In a move that could give stomach aches to Vermont’s confectioners and children alike, that state’s lawmakers are eying whether to start taxing sales of candy and soft drinks.  Recent proposed legislation in Vermont would, among other things, redefine the term “food” for sales tax purposes to specifically exclude those items, thereby making them taxable.

Vermont would not be alone to target junk food, as reported in a recent SALT Talk blog post.  Taxing candy and soft drinks tends to appeal to lawmakers for both economic and noneconomic reasons.  Not only does it increase state revenues, but also many observers argue that it establishes a more healthy food environment for the population.  For example, a recent U.S. Department of Agriculture report condemned sugar-sweetened foods and advocated for economic and pricing approaches that promote purchases of healthy foods and beverages.  The report suggested that local, state, and national governments should tax high-sugar and high-sodium foods and offer incentives for fruits and vegetables.

Fast-forward back to Vermont.  Once a state decides that it wants to tax candy sales, how best to do so?  The tax policy implications are hot enough to melt your Popsicle.

Vermont, being a member of the Streamlined Sales and Use Tax Agreement (SSUTA), defines “candy” thusly in its proposed legislation: “’Candy’ means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces. ‘Candy’ shall not include any preparation containing flour and shall require no refrigeration.”  That’s the standard SST definition.

You might be surprised at how much the second sentence fudges things up by drawing a line at “containing flour.”  The distinction produces confusing results that depart from most people’s understanding of what candy is.  For example, Snickers bars, Reese’s Peanut Butter Cups, and Mike & Ike candies do not contain flour, but Twix and Kit Kat bars do.  Surprisingly, therefore, the former are taxable candies under the SSUTA, but the latter are tax-exempt, as reported by NPR.  When is the last time you ate a Twix bar and congratulated yourself for avoiding candy?  Probably never.

The Streamlined Sales Tax Project and member states have discussed the matter, fielded public comments, heard testimony, offered guidance, and painstakingly classified products as either candy or food.  But the results are still confusing.  Many observers advocate in favor of a simpler system with fewer compliance burdens, such as the Tax Foundation’s position that “[t]axing all final retail sales equally and reducing rates overall could avoid these issues.”

The underlying debate on the economic and health effects of taxing candy is unlikely to abate any time soon, and people will continue to argue about what is and is not candy.  But in the meantime, the message to Vermonters is clear: crack open your piggy banks, run like Hot Tamales to the store, and load up now on those Gummi Bears.  You’ll be a Milk Dud if you wait too long, because that tax exemption is a Life Saver.  You might even save 100 Grand.

Continue the discussion on LinkedIn: How should states define the term “candy?”

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by Ryan J. Voorhees