Sales Tax Slice: Cinco de Mayo: Tequila, Tacos and Taxes!

Cinco de Mayo, which literally translates to “May 5th,” is a traditional Mexican holiday that commemorates Mexico’s Victory against France in the May 5, 1862 Battle of Puebla. Not surprisingly, Americans, both of Mexican and non-Mexican decent, have since embraced the celebratory aspects of this holiday by gorging themselves on Mexican delights and drinking tequila and beer.

Across America, retailers have seized the opportunity to capitalize on the holiday by offering consumers a plethora of goods and services to partake in many of the annual Cinco De Mayo Festivities. Type “Cinco de Mayo” into a web search and you will be directed to many different Cinco de Mayo events, such as the Cinco de Mayo Tequila Fest in Cleveland Ohio. You will also come across Cinco de Mayo recipes and, of course, directions on how to concoct the perfect margarita to wash down all of the delicious treats. Inevitably, purchasing these goods or services comes with a price for consumers which, in many states, is subject to an additional sales and use tax.

Generally, sales and use taxes are imposed on tangible personal property and some services. This sort of taxation will vary by state, but in the course of your Cinco de Mayo festivities, you will most likely pay sales and use taxes. Food, alcohol and most, if not all, items required  to put together a Cinco De Mayo fiesta (e.g. cups, plates, napkins, forks, spoons, decorations), will likely be included in your state’s definition of tangible personal property. In some cases, certain taxable items may be exempt from taxation or exempt under specific limited circumstances.  

With respect to food purchases, there is no uniformity amongst states as to whether food purchases should be exempt from sales and use taxes.  California exempts foods purchases for human consumption from taxation, unless the food falls into the category of prepared foods.  As such, if you live in California and decide to purchase a bowl of guacamole from Chipotle to kick off your 2016 Cinco de Mayo festivities, you will pay sales and use tax, but if you purchase the ingredients from a grocery store and make the guacamole yourself, you will not pay the sales and use tax. Alabama, on the other hand, taxes both food and grocery items purchased within the state and so either transaction would be taxable in Alabama.

States also vary on whether the alcohol is taxable.  That means, depending on where you live, if you choose to imbibe during your 2016 Cinco de Mayo celebration, you may be required to pay state and local sales and use taxes for your alcoholic beverages. Individuals who purchase alcohol in Iowa will pay sales and use tax on their purchase whereas Delaware residents will not.

Although less likely, depending on what services you employ during this year’s festivities, you may also find that you will be required to pay sales and use tax on certain services.  Specifically, taxi and transportation services come to mind for those choosing to celebrate the holiday at a bar or restaurant. Once again, imposition of sales and use taxation on these services is state specific; however, the states that impose taxes on such services can only do so on intrastate travel and not on interstate travel, which is prohibited under federal law. Georgia, Wyoming and New York impose sales and use tax on transportation services.

Realistically, many of the items and services discussed above are purchased and taxed on a day-to-day basis. But, if your Cinco de Mayo plans include a stop at your local taqueria or participation in your own state’s version of tequila fest, you should expect that your indulgence will most likely be taxed. Feliz Cinco de Mayo!

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By Stephanie E. Cangialosi