All products are not created equal and which products are taxed at which rate often is a matter of geography. For example, candy bars, doughnuts, and sandwiches all are food items, but depending on the jurisdiction each might be subject to different sales tax rates or product taxability. Rates can also depend on whether food is consumed on the premises or carried out.
Also, how food is sold can determine if the sale is taxable or exempt. Some New York state examples of foods that are exempt in one form but subject to sales tax in another are:
- One sliced bagel is considered a prepared food and subject to sales tax, but when purchased by the dozen, sliced bagels are exempt from sales tax.
- Cold cuts are exempt if sliced and sold by weight, but are taxable if sold as a food platter arrangement.
- Pizza is exempt if sold frozen, refrigerated, or unheated, but if sold heated, it is subject to sales tax.
- Hot dogs are exempt is sold packaged and refrigerated, but is taxable if sold heated or served on a bun.
- Ice cream is exempt if sold in a container by weight (this includes hand-packed pints, quarts, half gallons, etc.) but is taxable if sold as a made-to-order cone or sundae.
- Bread is exempt if sold by the loaf (whole or sliced,) but is taxable if served with a bowl of soup.
- Salad mix is exempt if sold packaged in a bag, but is taxable if sold from a self-serve salad bar or prepared and arranged on a plate.
In some states grocery items are subject to tax, but taxed at a reduced rate. Examples of such states are Arkansas, Illinois, Missouri, Tennessee, and Utah.
Apparel can also be subject to an array of tax regulations. Some jurisdictions draw distinctions for taxation between apparel worn for everyday use like t-shirts and luxury items such as fur coats. There can even be tax variations between a pair of sneakers and athletic cleats.
Some examples of the taxation of apparel are:
- New York exempts clothing and footwear for everyday use worn by humans that are sold for under $110. However, clothing that is sold for $110 or more is subject to tax on the full amount. The exemption in only at the state level unless the county or city imposing the taxes elects to provide the exemption at the local level.
- Pennsylvania exempts clothing worn for everyday use, but clothing that is made of real, imitation, or synthetic fir, formal day or evening apparel, accessories, and clothing worn or used in sports are taxable.
- In Connecticut clothing and footwear costing more than $1,000 is subject to a luxury goods tax on the full price.
- Massachusetts exempts clothing and footwear that is sold for $175 or less. However, clothing or footwear that is sold for more than $175 is subject to tax. However, only the amount over $175 will be subject to tax. The exemption does not apply to clothing and footwear that is designed and primarily used for athletic activities or for protective use.
- New Jersey exempts general clothing and footwear, but fur clothing, clothing accessories or equipment, sport recreational and protective equipment are taxable. Protective equipment is only exempt when purchased for the daily work of the user and worn as part of a work uniform or work clothing.
- Rhode Island exempts clothing and footwear intended to be worn or carried on or about the human body that is sold for $250 or less per item. The exemption only applies to the first $250 for each item.
In some states, sales of clothing and footwear are subject to tax. Examples of these states include Alabama, Arizona, Missouri, Nebraska, and New Mexico.
As SMB retailers consider expanding their product offerings, an automated sales and use tax solution that’s connected not only to localities but to product and service types can simplify calculations and keep the company compliant with taxability and rate changes that occur.
For more information read 5 Steps to Simplify Sales and Use Tax for Retailers.