7,400+ jurisdictions in America impose sales taxes, each with their own rates and laws on what’s taxed and what’s exempt. Many exempt groceries, for instance, but not prepared food. This bulletin from the Iowa Department of Revenue “carves” out another distinction based not on what the product is, but on “understanding”:
Pumpkins: Pies and jack-o’-lanterns
The Department recently refined its position on whether pumpkins are subject to Iowa sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. to more closely match what we believe to be their predominant use.
In the past, pumpkins were exempt from sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. as a food (edible squash), even if they were to be later made into jack-o’-lanterns or used as decorations.
Our position now is that pumpkins are taxable if:
1. They are advertised to be used as jack-o’-lanterns/decorations, or
2. It is understood that they will be used as jack-o’-lanterns/decorations
Pumpkins are exempt in the following circumstances:
* The buyer completes a sales tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax. certificate stating they will be used as food, or
* The pumpkins are a specific variety used to make pumpkin pies and are advertised in that way, or
* They are purchased with Food Stamps.
Retailers who sell pumpkins should keep these guidelines in mind and make any necessary changes to their tax treatment of pumpkin sales.
It’s a weird tax system that taxes the same item differently depending on the buyer’s intent. I’m sure Iowa pumpkin patches have better things to do than quiz their customers on future pumpkin uses.
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