May 1, 2008
The Newspaper of the NYSSCPA
Vol. 11, No.8

Exempt from Sense: Wacky Sales & Use Tax Rules in New York and Beyond

By Melissa Hoffmann Lajara, Trusted Professional Staff

Next time you’ve got a hankering for a Twix bar, don’t grab it from the candy aisle, and be sure to get your Twix fix in at least a package of six.

Otherwise, you’ll pay more for it.

Candy in New York state is taxable. Food, including cookies, is not. So what to do when a manufacturer decides to combine the two?

Both Twix and PB Max did just that. In a 1993 decision by the New York State Department of Taxation and Finance, the issue was pared down to a question of intent: Are you buying the items as candy or as cookies?

Any sales tax levied since then is levied based on how the item is marketed.

“PB Max and Twix bars are packaged in several different configurations and are advertised as cookies or snacks,” said Paul B. Coburn, then the deputy director of the department’s Taxpayer Services Division.

Because PB Max and Twix bars are similar to other cookie and snack products that are not taxed for sales tax purposes, PB Max and Twix bars in family packs advertised, marketed and sold as packaged cookies or snacks will be considered exempt from sales tax, Coburn ruled.

However, Coburn said, when PB Max or Twix bars are packaged in individual or two-bar packages, or when the packages are sold in a multi-pack and are advertised, displayed or sold as candy in a store’s candy section, the “candy bars” are subject to sales tax.

So, in the cookie aisle, boxes of Twix and PB Max bars are tax-exempt. In the candy aisle or near the cash register, packaged in pairs, the bars are taxed.

“It depends where you picked up the Twix,” said Mark S. Klein, a partnered attorney at Hodgson Russ LLP in Buffalo, who frequently speaks at NYSSCPA events on tax matters. “New York actually put out a bulletin on this.”

Think that’s strange? That’s just the beginning. On the books in New York state and across the nation, sales and use taxes are levied on such myriad items as blueberries, pumpkins, marijuana and toilet flushing. Some candy bars are taxable, while others make the exempt cut.

“In defense of the tax department, you have to draw a line somewhere,” Klein said.

Where that line falls, though, can sometimes be hard to understand.

New York’s Strangest Sales & Use Taxes

Unusual Clothing Exemptions

Most people are familiar with New York state’s annual—and New York City’s year-round—clothing and footwear sales tax exemption for items costing less than $110. There are, however, a few unusual exceptions to that sales tax rule, Klein pointed out.

“It’s price-based, but the way they’ve actually defined it is pretty weird,” Klein said. “Shower caps are exempt from tax, but swimming caps are taxable. Bicycle gloves are exempt. Gardening, skiing, tennis … hockey gloves and baseball gloves are all taxable. Shoulder pads in ladies clothing are exempt, but not in sports gear. Walking boots are exempt, but hiking boots are taxable.”

Goggles are taxable, unless they are prescription. Headbands are taxable, unless the head band is deemed a “sweat band.”

Also taxable, and specifically excluded from the list of exempt clothing in New York state, are protective helmets, protective masks and personal floatation devices.

Antique clothing is taxable, regardless of price, as it’s considered a collectible and not a wearable—even if you plan to wear it. In this case, intent doesn’t matter.

Costumes and rented formal wear are also not eligible, nor are fabric, thread, yarn, buttons, zippers and other like items used to make or repair exempt clothing if the item is “made from real or imitation pearls, or from real or imitation semiprecious stones, jewels or metals,” according to a release from the state tax department’s Office of Tax Policy Analysis Technical Services Division.

And exempt clothing must be worn by people, not animals.

Sales Tax Surprises on Supermarket Shelves

Adam Lambert, chair of the Society’s New York, Multistate and Local Taxation Committee, said he was most amused by New York’s “sales tax anomaly” regarding marshmallows.

In 1999, New York lawmakers abolished what the New York Times referred to as “marshmallow discrimination,” a sales tax rule that made large puffed marshmallows subject to sales tax, while mini-marshmallows were not—with the assumption being that they’d be cooked into candied yams or tossed into hot chocolate.

At the time, the ruling didn’t go the way consumers would have preferred. The state decided that marshmallows are candy, regardless of size, and would be subject to sales tax.

All marshmallows—including marshmallow fluff—are now tax-exempt.

The marshmallow saga is also a favorite of Barry H. Horowitz, member and former chair of the Society’s New York State, Multistate and Local Taxation Committee.

“We always made fun of that,” he said. “They come up with some good ones every once in a while.”

Other sales tax mysteries line supermarket shelves, according to the Times story, which noted that Aussie Mega shampoo is taxable, but Head & Shoulders is not, and powdered drink mix is taxable—unless it’s Tang. And although cheese, crackers, fruit and jams are tax-exempt, put them together in a basket, and you’ll pay sales tax.

Medical items are tax-exempt, but in order to avoid taxation, a consumer must select sterile cotton balls over the regular variety. Adult bladder-control diapers are tax-free, the Times said, but baby diapers aren’t.

Strange Sales Taxes Nationwide

California: Hot Foods Leave Taxpayers Cold

Klein pointed out that in California, sales tax on food is largely determined by temperature. For example, cold foods—including candy, produce and snack foods—are generally not taxable, unless sold through a vending machine.

A food is considered to be “hot” if it is prepared to be warmer than room temperature, even if the food cooled before being served. Such hot items, including roasted nuts, popcorn, hot sandwiches and soup, are taxable.

However, at least in California, hot bakery goods, coffee and other hot beverages are tax exempt, unless sold in a vending machine or in combination with other items.

Iowa: Milky Way Madness

In Iowa, if you don’t want to pay sales tax on your sweet treat, but are craving a Milky Way bar, you’d better go for the milk chocolate kind, Klein said.

According to Iowa tax law, “candy shall not include any preparation containing flour and shall require no refrigeration.”

In the regular Milky Way bar, wheat flour is the third-to-last ingredient, making the chocolate bar tax-exempt. But the less-sweet Milky Way Midnight Bar—produced with semisweet chocolate and not milk chocolate—contains no flour at all, and is thus subject to sales tax.

Iowa: Please State Intent with Pumpkin

Another sales tax in the state drew the ire of taxpayers and officials around Halloween—the taxation of pumpkins, according to the Tax Foundation, a nonpartisan tax research organization based in Washington, D.C.

As produce and an unprepared food, pumpkins are usually a tax-exempt food item. But a decision from the Iowa Department of Revenue deemed them taxable if they are intended to be carved into jack-o’-lanterns. If consumers wanted to buy a pumpkin and eat it, they would need to state their intent to do so and fill out a sales tax exemption form. Or purchase the gourd with food stamps.

There were, as you might imagine, some complaints. The Iowa Department of Revenue reversed its decision and now, whether you want to eat, carve, smash or shoot your pumpkin in Iowa, you can do so tax-free.

But Iowa is not alone in its desire to get revenue from sales of this particular squash at Halloween-time. Other states, including Pennsylvania and New Jersey, tax pumpkins based on intent, according to a 2007 article published by Tax Analysts.

Maryland: Money Down the Drain

But what about flushing the toilet? Should that be taxed?

Maryland lawmakers thought so. Four years ago, the so-called “Free State” began charging homeowners and business for producing wastewater, according to a CNN Money report, in a bid to “help protect Chesapeake Bay waters.”

If you think this use tax wouldn’t hold its water, so to speak, think again: A “flush tax” has reportedly has also been eyed by Virginia lawmakers.

Minnesota and New Jersey: Go Faux or You’ll Pay

Minnesota, home to European fur traders in the 1600s, has since reversed its position on pelt-based fashion.

Although clothing in the state is largely tax-exempt, businesses in the state “must pay a 6.5 percent tax on the total amount received for the sale, shipping and finance charges associated with the purchase of clothing in which fur accounts for three times more of the garment than the next most valuable material,” according to the CNN Money report.

New Jersey followed suit, but in a way that left furriers flabbergasted. In late 2005, owners of fur shops were told they would no longer need to collect sales tax on their clothing, but the following July, the new state budget dumped a “fur clothing gross receipts tax” of 6 percent on their collective lap, according to a 2006 article in the New York Times.

New Jersey, which doesn’t tax clothing, initially planned to remove the sales tax on furs to bring those items in line with the state’s general sales tax exemption on clothing, the Times said, but a scramble for revenue resulted in the reinstatement of the fur tax.

Nationwide: Tax Stamps for Illegal Drugs

Former New York state Gov. Eliot Spitzer’s 2008-2009 budget proposal initially included a tax on illegal drugs, but that provision has been eliminated, although about half the states in the nation have illegal-drug taxes on their books.

In Alabama, marijuana is taxed at $3.50 per gram, and taxes on other drugs are figured accordingly. For example, if a gram of cocaine costs 10 times as much as a gram of marijuana, the tax on that gram of cocaine would be $35. This varies state-to-state.

Some states, such as North Carolina, require that you be in the possession of more than a certain amount to be subject to the tax, according to CNN Money. It reported that North Carolina had managed to rake in $78.3 million over the course of the 15 years the tax has been enforced, but almost all came from residents arrested and found without stamps on their drugs.

Maine: Blueberries Boost State Revenue

Maine loves its main cash crop, blueberries, especially since it receives a significant amount of revenue from the farming and sale of the fruit.

According to Chapter 701 of Maine’s tax code, “there is levied and imposed a tax at the rate of [three-quarters of a cent] per pound of fresh fruit on all fresh wild blueberries grown, purchased, sold, handled or processed in this state. The tax is computed on a fresh fruit basis, regardless of how the wild blueberries are processed.”

Maine, incidentally, repealed its own version of the illegal-drug tax.

Melissa Hoffmann Lajara, Associate Editor, can be reached at

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