Taxes on Chocolate: Not So Sweet

 
 
February 14, 2008

In honor of Valentine’s Day, a short list of interesting tax facts about chocolate, from around the world.

♦ 1692 - From the Toblerone website:

Louis XIV, the Sun King, issues an edict levying taxes on chocolate.

♦ 1704 - From the Godiva website:

At the end of the 17th century, chocolate makes a very welcome entry to Germany. But with his policy of restricted imports, Frederic 1st of Prussia slaps a tax on chocolate.

♦ 1726 - From the Barry Callebaut website:

King George I raises taxes on chocolate sales and consumption.

♦ Mid-1800s - From Practically Edible:

In 1847, J.S. Fry in Bristol made the first Chocolate bar. Britain lowered taxes on Chocolate in the mid-1850s to help manufacturers popularize it.

♦ 2004 - From The (Calcutta, India) Telegraph:

Norway's finance minister showed a sweeter side on Thursday by penning a poem to calm chocolate factory workers' protests against high taxes. In a novel form of fiscal argument, Per-Kristian Foss presented a debut poem on the government's website .... In the poem, in Norwegian, Foss laments his duty to balance the budget but gives no hope of lower taxes on chocolate and candy production. He concludes: "Live sweet in the hope of a fee-less fest/ Tax-free chocolate probably tastes the best." Everyone from producers to sweet-toothed children complain that Norwegian candy prices are higher than elsewhere in Europe. Foss entitled his 32-line poem Per-Kristian and the Chocolate Factory, a play on Roald Dahl's children's book Charlie and the Chocolate Factory.

♦ 2004 - Iowa's adoption of the Streamlined Sales Tax Project's definition of candy (which is subject to sales tax in Iowa) leads to some strange disparities in the taxation of chocolate.  

From the Iowa Grocery Industry Association:

The Iowa Department of Revenue (IDR) has announced a change in the list of items that will be eligible for sales tax application. The big change that will affect food retailers is the decision by the IDR that packages of chocolate chips (drops) used for cooking, almond bark in pieces, shredded sweetened coconut, and baker's chocolate will now be taxable, effective January 1, 2005.

This is a reversal of the previous department position last summer that these items would be exempt, because they had not been previously considered candy under Iowa law. The department cited the SSTP definition of candy. Under the SSTP's definition of candy, they would be taxable.

SSTP Definition of Candy:
Candy means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. Candy does not include any preparations containing flour which require no refrigeration.

. . .

The big change will be in the make up of candy with flour. Any item that previously fell under the definition of candy under Iowa law definitions, but contains flour (of any amount) will be exempt from sales tax. For example ... Reece's sticks will be exempt from tax because they contain flour. Currently they are taxed. Brach's Bridge Mix will be exempt (has flour), but Brach's Chocolate Stars will be taxable. It does not matter how much flour, or if it is rice, wheat, or another variety of flour. If it contains flour, it is not taxed.

As some blogs have pointed out, this means that classic Milky Way bars, which contain flour, are tax-exempt, while Milky Way Midnight (dark chocolate) bars are taxed because they do not contain flour. Who ever said the tax code was logical?

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