Weirdest Sales and Use Taxes
States and localities sometimes must resort to desperate measures to raise much-needed tax revenue. Here's a list of the quirkiest sales and use taxes of 2011 and 2010 from the Tax & Accounting business of Thomson Reuters.
Food purchased under federal assistance programs is tax-freebut liquor-filled candy no longer qualifies as food in Colorado.
In Vermont, proceeds from an auction are exempt only if the auctioneer performs the auction on the premises of the property owner. If the auction takes place elsewhere, or if any other property is commingled with that of the owner, then the proceeds are subject to sales tax.
Maine passed a law last year that says the sale of watercraft is exempt from state sales tax when the buyer is a non-resident and the craft remains in the state for less than 30 days.
Residents in Pennsylvania can breathe a little easier after an April 2011 ruling by the Commonwealth Court of Pennsylvania. In Air-Serv Group, LLC v. Commonwealth, the court concluded that air from the atmosphere is not subject to state sales tax. Whew!
In 2010, New York cracked down on its enforcement of the tax on prepared food, specifically targeting a New York staple: bagels. If you buy a whole bagel and take it home with you, it is exempt from tax. However, if you purchase that same bagel, but eat it at the bagel shop (even without cream cheese), bagel shops must charge sales tax on the purchase price. Apparently, the mere slicing of a bagel kicks your bagel purchase into a taxable transaction. As a result, New Yorkers are paying approximately 8 to 9 cents more per bagel.
On June 30, 2010, the Kansas Department of Revenue issued a private letter ruling discussing the taxability of hot air balloon rides. Kansas generally taxes sales of admissions to any place providing amusement, entertainment or recreation services. The question was not whether or not balloon rides are entertaining, but whether or not federal law pre-empts the imposition of state sales tax on sales of those rides. Under the Anti-Head Tax Act, states and local jurisdictions are prohibited from imposing fees and charges on airlines and other airport users. The department determined that un-tethered balloon rides where the balloon is actually piloted somewhere some distance downwind from the launching point would be considered carrying passengers in air commerce and would be pre-empted by the law. However, state sales tax can be imposed on tethered balloon rides.
Effective March 1, 2010, Colorado eliminated the exemption for non-essential food items and packaging provided with purchased food and beverage items. So, while cups are considered essential, lids are not.
Every year before it is time to go back to school, several states allow for a tax holiday on school supplies and clothing, with several oddities seemingly infiltrating the exemptions. In Texas, belts are exempt, but belt buckles are not. Cowboy boots and hiking boots are also exempt, but rubber boots and climbing boots are taxable.
In June 2010, Washington State enacted legislation that made candy without flour taxable. According to a list published by the Washington Department of Revenue, Rainbow Whirly Pops and Lemon Drops were taxable, but Twizzlers and Peppermint Bark Shortbread remained exempt. However, because the law caused so much confusion, and after push-back from voters and large candy makers, Initiative 1107 was passed, repealing the tax on candy effective Dec. 2, 2010.
According to TSB-A-10(11)S, admissions to haunted houses are subject to the New York sales tax. (Ghosts are only subject to the estate tax.)