What is Taxable? The Results May Surprise You!
When it comes to state and local taxes (SALT), it isn’t just the finer details of the laws that differ, but more often, the very definition of what is taxable that varies from state to state.
If you are considering expanding your practice to other states or adding a SALT niche, there are numerous examples of the kinds of tax curve balls you can expect to run into if you have clients who sell these kinds of products. After all, Wakefield Research recently estimated that a tax audit costs businesses $96,000 on average, so make sure you pay close attention to SALT laws to help minimize your clients’ liability.
1. Clothing and Goods
Several states such as New Jersey and Minnesota do not have any sales tax on clothing, while other states such as Massachusetts only applies a sales tax to clothing sales over $175.
Pennsylvania takes clothing sales taxes an apparently necessary step further to apply a specific clothing sales tax to formal wear, including gowns, opera capes and wing collars. This is because Pa. defines clothing as “every day wear,” which everyone agrees that opera capes are not. But don’t worry; cleaning or repairing your formal wear is tax-free in Pennsylvania, unless you get formalwear alterations at the time of the sale.
Buying a fridge or stove in North Carolina requires a $3 “White Goods” sales tax, which goes toward the inevitable disposal of your old “white good.” The white goods disposal tax also must be reported separately to the authorities via the White Goods Disposal Tax Return, Form E-500H. Other “white goods” include ranges, water heaters, freezers, unit air conditioners, washing machines, dishwashers, clothes dryers and “other similar domestic and commercial large appliances,” even if they are, in fact, black or silver.
One of the most humorous sales tax laws can be found in Colorado. Food packaging that is essential is not taxed, while non-essential food packaging has a sales and use tax of 2.9 percent. Cups, utensils, and plates are all considered to be essential by Colorado. However, lids, straws, and napkins are not. The tax laws deem these items merely “convenient.”
If you have clients who grow, purchase, sell, handle or process blueberries in Maine, they’ll need to pay Maine’s “blueberry tax” of three-quarters cents per pound of fresh wild blueberries. This must create a nice revenue stream for Maine, which produces more wild blueberries than any other state in the United States.
Illinois and Iowa have specific sales taxes for candy that contains flour. In Iowa, candy that contains flour is not taxable, while in Illinois, candy with flour is taxed at a standard “food rate,” while candies without flour are taxed at a higher rate.
Colorado has a specific sales tax law for liquor-filled candy. Legislators there determined this treat is not “food” and therefore not exempt from the usual food sales tax exemption in the state.
California’s tax code section 32177.5 specifies that the U.S. military may purchase alcohol in that state without paying sales tax. This includes any alcohol sales to officers, noncommissioned officers, and enlisted men's clubs or messes.
There are two states with humorously differing donut sales tax requirement: sales of five or less donuts in Texas tax, while sales of six or more donuts do not. However, if you sold six or more donuts in a “maintained, heated state,” more than six donuts accompanied with eating utensils, or six donuts on any kind of plate, you would have to charge a sales tax.
Meanwhile, in Virginia, if a customer order five or less doughnuts, that's considered a meal and requires sales tax. If a customer orders six or more doughnuts, then Virginia does not require sales tax.
Ice cubes sold in Arizona are exempt from sales tax, but blocks of ice are not.
3. General Tax Requirements
There are 21 states which mandate that those who possess marijuana must purchase and affix state-issued stamps onto the marijuana contraband. This may be difficult to enforce or to get your clients to own up to.
If you live in Boston, you are required to pay an excise tax on your car based on the model and age of your vehicle, but not the wear or mileage. The tax is $25 per thousand dollars of the car’s value.
Don’t worry; if your car is stolen, you are eligible for a reduction in that tax. But, watch out: unpaid excise bills will accrue interest at the rate of 12 percent from the day after the tax was first was due until you pay everything off.
In Hawaii, the various expenses relating to maintaining and caring for “exceptional” trees are exempt for sales tax, up to $3,000. Now, the tree in question must be designated as an exceptional tree by the local county arborist advisory committee under Hawaii tax law, chapter 58, HRS. To get this tax credit, you’ll need an affidavit signed by a certified arborist stating that the amount of expenditures was reasonably necessary.
If a business sends send sales reps to conferences or trade shows in Illinois, it will owe sales taxes on any sales made at the event.
If a website in another state links to a business and generates a “significant” amount of revenue (definitions of significant differ state by state, naturally), the business will be required to pay sales tax to the home state of the referring website.
In Illinois, an “amusement tax” adds nine percent to residents’ satellite TV bills. Currently, a proposal to add this tax to services like Netflix and Spotify is under review.
You can be a better trusted advisor to your clients by educating them on these and other tax topics. While you may not necessarily have clients who sell candy, grow trees or produce ice cubes, it never hurts to be more familiar with what’s taxable … and what’s not!