Worried about pricey Halloween candy? A tax rule could help you save

Halloween candy spending has eased from a year earlier as chocolate prices remain elevated, but tax specialists say there is a legal way for shoppers to make their candy money go a little further.

Recent research shows candy sales declined 6.7% compared with the same period a year earlier. Analysts say higher prices and tighter household budgets are likely part of the reason. A majority of consumers also say Halloween feels too expensive, and many expect to spend less. Still, tax experts note that some shoppers can cut costs by knowing how their state defines “candy.”

That definition can make a difference between paying sales tax on one chocolate bar but not another. The key distinction in some states comes down to flour.

Candies with a cookie-like ingredient list, such as Kit Kat, Twix and Nestle Crunch, may be treated differently from products such as M&Ms or Hershey’s bars. In some places, choosing the lower-taxed option can reduce the bill by as much as 7%.

“This particular definition leads to some interesting distinctions,” Janelle Fritts, senior policy analyst with the Tax Foundation’s Center for State Tax Policy, wrote 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 certain cases.

Which states separate candy with flour?

Two dozen states participate in the Streamlined Sales and Use Tax Agreement, which defines candy as a sweet made with chocolate, fruit, nuts or other ingredients in bar, drop or piece form. The definition does not include flour.

The agreement is intended to standardize taxes across the country, reduce compliance burdens and make interstate business easier, though each state can still apply its own tax rules for candy.

The participating 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 rule under the agreement.

Among these 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. In those states, flourless candies such as gummy bears, candy corn, Hershey’s Kisses and Snickers are taxed, sometimes at rates as high as 7%, while candies that contain flour, including Twix, licorice and Whoppers malted milk balls, are taxed at 0% except in North Carolina, where sweets with flour are subject to a lower 2% local sales and use tax.

Tennessee applies its discounted food tax rate of 4% to candies with flour, such as Sour Punch Straws and Ferrero Rocher, while flourless candies such as lollipops and Skittles are taxed at 7%.

The other SST states, with the exceptions of South Dakota and Utah, do not tax candy at all. South Dakota taxes all candy at 4.2%, while Utah applies the same 3% reduced rate to both kinds of candy.

What about non-SST states?

Several states outside the agreement do not tax groceries. Because candy purchased for off-premise consumption is treated as a grocery item there, they do not tax candy with or without flour:

• Arizona
• California
• Louisiana
• Massachusetts
• New Mexico
• Pennsylvania
• South Carolina
• Washington, DC

States with no sales tax on any product also leave Halloween treats untaxed. Those states are Alaska, Delaware, Montana, New Hampshire and Oregon.

Illinois, though not part of the agreement, uses the SST candy definition to apply different tax rates. Plain or peanut M&Ms are taxed at the full state rate of 6.25%, while candy with flour, such as Pretzel M&M’s, qualifies for the lower 1% grocery tax.

Colorado is also outside the agreement, but it uses the same candy definition and taxes flourless candy such as cotton candy, gum and mints at 2.9% while exempting items with flour.

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

In New York, packaging and marketing can affect the tax treatment. The state Department of Taxation and Finance says pure maple sugar products are exempt as food unless they are displayed, labeled or advertised as candy or confectionery. They are not considered candy simply because they are shaped like maple leaves or sold individually.

What does this mean for consumers?

The rules can be confusing, but tax experts say they also offer a small opportunity for savings. As one accounting group put it, the sweetest bargains sometimes come from the smallest details.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

This article originally appeared on USA TODAY: Afraid of high Halloween candy prices? Save with a sweet tax loophole

Reporting by Medora Lee, USA TODAY / USA TODAY

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