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More on Taxing Carved Pumpkins, Exempting Consumed Pumpkins

2 min readBy: Joseph Bishop-Henchman

We blogged last week about the Iowa Department of Revenue’s decision to impose 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. on carved pumpkins, but not on consumed pumpkins. Whether pumpkins are taxed thus depends on the buyer’s intent, which retailers were advised to “keep in mind” when selling pumpkins.

Exemptions like these increase the complexity of our 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. system, which increases compliance costs, not to mention legal liability for overcharging or undercharging. Several other bloggers added thoughts of their own, such as at Caulk is Cheap, which titled the post, “Please state your intentions for buying that pumpkin (and complete form #4675).”

Couldn’t the bureaucrats at the IDOR be doing something more productive with their time than divining my reasons for purchasing an Iowa pumpkin? And why is purchasing a pumpkin with food stamps an exemption? People on food stamps don’t carve pumpkins? And what happens if you carve the pumpkin and roast the seeds? Is that food or fun?

At Economics, the bizarre pumpkin exemption is compared to similar ones in Canada:

We went through this issue in Canada about 20 years ago when the GST (Goods & Services Tax) was implemented. If you want to see some really interesting exemptions, see the section on basic groceries (PDF). It includes these gems:

· Single severing beverages of white milk are exempt from GST, but servings of chocolate milk are not.

· Cooking wine is exempt from the GST, but other wines are not. But grape juice concentrate used to make wine is exempt from the GST.

· Chocolate chips are exempt from the GST, but chocolate bars are not.

· Microwave popcorn is exempt from the GST, but popcorn coated with caramel is not.

· My all-time favourite: Packages of six or more donuts are exempt from the GST, but sales of five or less donuts are not.

More on sales taxes here.