Texas recently modified the sales tax law to tax single servings of snacks. Previously, individual-sized packages of various otherwise-exempt foods were taxable as prepared food when sold by businesses with eating facilities. Now individual serving packages of snacks are taxable regardless of where they are purchased, while individual servings of the other items remain taxable from eateries but are still exempt from supermarkets.
The new law is intended to provide “certainty and clarity” (according to the legislative statement of intent) but all I see is additional complexity. How is this tricky? Let me count the ways …
The new law applies only to snacks so the first thing a retailer has to do is determine whether the food in question is a snack. Breakfast bars, granola bars, nutrition bars, sports bars, protein bars and yogurt bars – check. Unless they are candy in which case they are already taxable regardless of size or location purchased. Snack mix, trail mix, nuts, popcorn, chips, crackers and hard pretzels – all snacks. Not sure about pork rinds or beef jerky …
The next question is the number of servings contained in a package. The new law defines a single serving as a portion that is labeled as having not more than one serving or, if not labeled with the number of servings, containing less than 2.5 ounces. FDA labeling regulations requiring that the number of servings be listed will make this easy for most prepackaged items (other than having to look at each package, of course) but unpackaged or retailer-packaged snacks will have to be weighed.
I’ve had incidents at my local candy store where a container of exempt nuts and dried fruit rang up as taxable because their assumption is that all of these combos include candy. (In their defense, why else are you in a candy store?) Now, not only does it matter what’s in the package, but also how much it weighs. Try programming your cash register for that! Imagine if apples are only exempt if the customer buys at least a pound of them. Clothing retailers in certain states already deal with taxability thresholds based on price. Now Texas food retailers have to deal with thresholds based on weight.
A third consideration is how this new law works with the existing taxation of individual servings sold by businesses with eating facilities. The prepared food definition specifies that packages of snacks are considered individual-sized if they contain less than 5 ounces, with no reference to the number of servings on the label. The new statute looks to the number of servings and, if not labeled, weight. Does this new statute change the taxability of items sold by eating establishments? Although they both use the words “individual-sized” the two laws don’t really contradict one another. Will packages of snacks that contain more than one serving or 2.5 ounces but less than 5 ounces still be taxable when sold by businesses with eating facilities?
Providing certainty and clarity is a great goal, and I would appreciate if someone can explain how that’s accomplished here.
Other recent “Food (Tax) for Thought” posts by Connie Eisenberg:
- Texas Snacks Tax: One is the Loneliest Number, and Taxable, Too
- If It's Sweet It Might Be Candy, But Is It Good Tax Policy?
- The Case for Taxing Groceries. Or Against It. Or for It …