Worried About Halloween Candy Costs? A Tax Rule Could Help You Save

Hershey's Kisses can be taxed at as much as 7% in some states, while a Twix bar may be tax-free, depending on where you buy it.

Halloween candy purchases are running below last year’s pace as chocolate prices remain high, but tax experts say there is a loophole that can help Americans make their candy budgets go farther and still keep the trick-or-treaters happy.

Sales of Halloween candy dropped 6.7% in the month ending Oct. 17 compared with the same period a year earlier, according to research firm NielsenIQ. Much of that decline likely reflects pressure on household budgets from higher gas prices. More than two-thirds of people believe Halloween costs too much this year, and 71% plan to spend less, according to WalletHub. Still, shoppers may be able to save by paying attention to how their state defines “candy,” tax experts said.

That definition can mean you pay more for Hershey’s Kisses than for Kit Kats. The key difference between those two chocolate treats? Flour.

Candies with a cookie-like crunch, such as Kit Kat, Twix and Nestle Crunch, are not always treated as candy for tax purposes and can be taxed differently from M&Ms or a Hershey’s bar in the same state, tax professionals said. Choosing a product that is taxed at a lower rate can save shoppers up to 7% in some states.

“This particular definition leads to some interesting distinctions,” wrote Janelle Fritts, senior policy analyst with the Tax Foundation’s Center for State Tax Policy, in a blog post. “If you bought a Hershey’s bar, it would be subject to sales tax. If you bought a Twix bar, it would be tax-free” in some cases.

Which States Make a Distinction for Candy With Flour?

Two dozen states participate in the Streamlined Sales and Use Tax Agreement, or SST, which defines candy as “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.” Flour is not included.

The agreement is intended to align tax rules across the country, reduce administrative burdens and make interstate commerce easier for businesses. Even so, each state can still decide how it taxes “candy.”

The SST states are Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming. Tennessee remains an associate member until it adopts every uniform definition, rate structure or administrative provision under SST.

Among those states, Arkansas, Indiana, Iowa, Kentucky, Minnesota, New Jersey, North Carolina, North Dakota, Rhode Island, West Virginia and Wisconsin follow the SST candy definition and tax accordingly. Flourless candies such as gummy bears, candy corn, Hershey’s Kisses and Snickers are taxed, with some rates reaching 7%, while candies containing flour, including Twix, licorice and Whoppers malted milk balls, face a 0% tax except in North Carolina. In that state, sweets with flour are subject to a lower 2% local sales and use tax.

Tennessee taxes flour-containing candies such as Sour Punch Straws and Ferrero Rocher at the discounted food tax rate of 4%, while flourless candies such as lollipops and Skittles are taxed at 7%.

In the remaining SST states, with the exception of South Dakota and Utah, candy is not taxed at all, whether it contains flour or not. South Dakota taxes all candy at 4.2%, while Utah applies the same 3% reduced rate to both types.

What About States Outside SST?

Several non-SST states do not tax groceries. Since candy purchased for off-premise consumption is treated as a grocery item, these states do not tax candy with or without flour:

• Arizona
• California
• Louisiana
• Massachusetts
• New Mexico
• Pennsylvania
• South Carolina
• Washington, DC (although not a state, it falls into this category)

States with no state sales tax on any product also offer tax-free Halloween candy. Those states are Alaska, Delaware, Montana, New Hampshire and Oregon.

Illinois, although not an SST state, uses the SST candy definition to apply different tax rates. Candy without flour, such as plain or peanut M&Ms, is taxed at the full state rate of 6.25%, while candy with flour, such as Pretzel M&M’s, gets the lower 1% grocery tax.

Colorado is also outside SST, but it uses the SST candy definition and taxes flourless candy such as cotton candy, gum and mints at 2.9%, while exempting candies that contain flour.

New York, Florida, Texas, Hawaii, Alabama, Idaho, Connecticut, Mississippi, Maryland, Missouri, Virginia and Maine tax all candy, regardless of flour content.

In New York, the packaging and marketing of a product can determine its tax treatment. “For example, pure maple sugar products are exempt as food unless displayed, labeled, or advertised as candy or confectionery. They are not candy merely because they are molded in the shape of a maple leaf or sold in individual quantities,” the state Department of Taxation and Finance said on its website.

What It Means for Shoppers

The candy tax can be surprisingly complicated, but tax experts say it offers a useful reminder that even small details can affect how much consumers pay. “Sometimes, the sweetest savings come down to the finest details,” wrote tax accounting experts at Tehrani & Velez, LLP on LinkedIn.