From hot air balloons to bagels, 2010 proved to be yet another year in which states and municipalities passed some strange tax laws in a desperate bid to raise revenues and close their budget gaps.
The Tax & Accounting business of Thomson Reuters has compiled a sampling of some of the year’s quirkiest sales and use tax changes, emphasizing the importance of technology and expertise to help navigate the dynamic sales and use tax landscape.
A few of the “quirky” sales and use tax highlights of 2010 include:
• Candy without flour in Washington: In June, 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.
• Belt buckles in Texas: 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.
• Bagels in New York: 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.
• Cup lids in Colorado: 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.
• Hot air balloons in Kansas: On June 30, 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, 29 U.S.C. Section 40116, 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.
• Haunted houses in New York: According to TSB-A-10(11)S, admissions to haunted houses are subject to the New York sales tax.