Bwaahahaha! Is that the ghostly laugh of a Halloween haunt — or the auditor reviewing your sales tax returns? Dealing with sales tax can be a ghoulish task. And for businesses with compliance obligations in multiple states, it can be frighteningly difficult to know which rules apply.
Take pumpkins, for example. Nothing says fall quite like overflowing cornucopias, evil-grinned jack-o’-lanterns and (yep) pie. But be warned: not all pumpkins are created equal. In New Jersey and Pennsylvania, taxability depends on if your pumpkin is tricked-out or treat-worthy. Pumpkins to be used for decoration (painted, varnished or carved) are taxed while pumpkins used for food (like pie) are tax-exempt. In Iowa, all pumpkins used to be taxed, but farmers complained, so now the state only applies sales tax to inedible gourds.
While we’re on the topic, here are nine more thorny tax rules that can make compliance a nightmare:
- Mask your disappointment. Fall sales tax holidays aren’t just for back to school clothes. In states like Georgia, you can snap up Halloween costumes for the whole family tax free. But in Texas, the exemption applies only to kids’ costumes. And in some states, masks are not considered apparel, and are therefore taxable.
- Somewhat foggy. Love that cool dry ice trick in the party punch bowl? Well, it might cost you. Eleven states tax ice products differently. In Arizona, for example, ice cubes are exempt from sales tax but ice blocks are not.
- Ooh, that stings. We’ve got an inkling this will needle a few artistic types: Arkansas charges a 6% tax on tattoos and body piercings.
- How corny is this? A theater owner in California claimed popcorn was “cornditioned” (dehumidified, not heated) and therefore not subject to sales tax as a “hot prepared food.”
- Beware the witching hour. Delaware doesn’t have a sales tax. However, it has some pretty kooky rules for Halloween. Children may only trick-or-treat from 6 to 8 p.m. and, if Halloween falls on a Sunday, they must trick-or-treat on October 30 during this same time interval.
- Not so sweet deal. Handing out treats for Halloween? Turns out half of North Carolina retailers were overcharging sales tax on certain candy items like Kit Kat and Twix. North Carolina has a lower sales tax rate for items classified as “food” because flour is an ingredient — including candy. Other states with similar sticky sales tax rules: Washington, Illinois, Colorado and Connecticut
- Dressing up this year? You can’t take a tax deduction on a business suit in Maryland, even if it’s required office attire. But if you’re employed as a clown, you can write off the clothes …all the way down to the big shoes and red nose. What’s the difference? Usability. If you can wear it somewhere else, it’s not deductible. So what happens if the clown dresses up like a lawyer for Halloween (or vice versa)?
- Death becomes her. Get your makeup done in a beauty salon in Ohio and you’ll pay sale tax. But you can go to your grave knowing the mortuary touched you up tax free.
- Supernatural powers of persuasion. Philadelphia filmmaker M. Night Shyamalan convinced Pennsylvania lawmakers to renew a 25% tax credit to film companies that spend 60% or more of their production budget in the state. Without the credit, he claimed, the industry would walk. The state acquiesced, even giving credit for $29 million in visual effects work performed out of state.
State sales tax regulations can be tricky and it’s no treat trying to figure them out on your own. It’s easy to get caught up in the complex web of sales tax rules and rates. You know what else is scary? What can happen when you collect sales tax but don’t remit it, as Will shows us in his latest whiteboard video.
Ward off these evils by talking to your accountant or systems provider about ways to make both calculation and filing sales tax process easier by automating compliance in your ERP, ecommerce or billing system with Avalara AvaTax.
Jack Boyer, Boyer & Associates, Dynamics GP, SL and NAV Implementation & Support, Minneapolis, MN