Tax Treatment of Groceries, Candy, and Soda Can Get Tricky

October 28, 2020

Even in 2020, jack-o’-lanterns and fake skeletons have popped up in neighborhoods as they do every October, although Halloween may look and play out differently this time around. According to the National Retail Federation, fewer people plan on partaking in Halloween activities, but those that do expect to spend more than usual—and that spending includes candy. After all, costume parties may be off the table, but there’s nothing stopping you from enjoying a nice evening at home with piles of nougat-based treats. And maybe passing out some of that loot to masked trick-or-treaters.

In other words, there’s no better time for a map looking at how different state sales taxes treat consumable goods like candy, groceries, and soda.

Forty-five states and the District of Columbia levy a state sales tax. Of those, 32 states and the District of Columbia exempt groceries from the sales tax base. Twenty-four states and D.C. treat either candy or soda differently than groceries. Eleven of the states that exempt groceries from their sales tax base include both candy and soda in their definition of groceries: Arizona, Georgia, Louisiana, Massachusetts, Michigan, Nebraska, Nevada, New Mexico, South Carolina, Vermont, and Wyoming.

Six additional states (Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia) tax groceries at a lower, preferential rate. Three of those six include both candy and soda in the rate applied to those lower-taxed groceries. Arkansas and Illinois exclude soda and candy from the tax preference, taxing them at the standard rate.

Halloween tax, Halloween candy tax, Sales tax treatment of groceries, candy, and soda as of January 1, 2020

The aim of a grocery exemption is to reduce tax burdens on necessities, particularly those which take up a large share of overall consumption for low-income consumers, which obligates states to decide which products are essential. When foods are categorized as necessities based on nutritional value, soda and candy are among the first products to be added to the “taxable” list. This raises obvious questions about a host of other food items like chips, baked goods, and ice cream. In the interest of narrowing the exemption to necessities, most states end up excluding certain foods and beverages.

Some state definitions can make food and candy taxation counterintuitive. Twenty-four states align with the Streamlined Sales and Use Tax Agreement (SSUTA), which determines that candy is different from other sweet foods because it comes in the form of bars, drops, or pieces, and does not contain flour. Base uniformity across states is good, but this particular definition leads to some interesting distinctions: If you bought a Hershey’s® bar, it would be subject to sales tax. If you bought a Twix® bar, it would be tax-free. Similar conundrums appear when you get into the difference in definitions between prepared food and food intended for off-site consumption: a rotisserie chicken would be taxed if it’s heated by a warming device but untaxed if it’s packaged and refrigerated.

Ultimately, states and consumers alike would benefit from a low, single-rate sales tax that captures all final consumer products. Such a tax would be easy to administer, providing a stable source of revenue through a neutral and transparent structure.

See the table below for more specific information on how groceries are treated in different states.

Sales Tax Treatment of Groceries, Candy & Soda, as of January 1, 2020
State State General Sales Tax Grocery Treatment Candy Treated as Groceries? Soda Treated  as Groceries?
Ala. 4.00% Included in Base Yes Yes
Alaska (a)
Ariz. 5.60% Exempt Yes Yes
Ark. 6.50% 1.50% No No
Calif. (b) 8.25% Exempt Yes No
Colo. 2.90% Exempt No No
Conn. 6.35% Exempt No No
Del. (a)
Fla. 6.00% Exempt No No
Ga. 4.00% Exempt Yes Yes
Hawaii 4.00% Included in Base Yes Yes
Idaho 6.00% Included in Base Yes Yes
Ill. 6.25% 1.00% No No
Ind. 7.00% Exempt No No
Iowa 6.00% Exempt No No
Kans. 6.50% Included in Base Yes Yes
Ky. 6.00% Exempt No No
La. 4.45% Exempt Yes Yes
Maine 5.50% Exempt No No
Md. 6.00% Exempt No No
Mass. 6.25% Exempt Yes Yes
Mich. 6.00% Exempt Yes Yes
Minn. 6.875% Exempt No No
Miss. 7.00% Included in Base Yes Yes
Mo. 4.225% 1.225% Yes Yes
Mont. (a)
Nebr. 5.50% Exempt Yes Yes
Nev. 6.85% Exempt Yes Yes
N.H. (a)
N.J. 6.625% Exempt No No
N.M. 5.125% Exempt Yes Yes
N.Y. 4.00% Exempt No No
N.C. 4.75% Exempt No No
N.D. 5.00% Exempt No No
Ohio 5.75% Exempt Yes No
Okla. 4.50% Included in Base Yes Yes
Ore. (a)
Pa. 6.00% Exempt Yes No
R.I. 7.00% Exempt No No
S.C. 6.00% Exempt Yes Yes
S.D. 4.50% Included in Base Yes Yes
Tenn.  7.00% 4.00% No Yes
Tex. 6.25% Exempt No No
Utah (b) 5.00% 1.75% Yes Yes
Vt. 6.00% Exempt Yes Yes
Va. (b) 5.30% 2.50% Yes Yes
Wash. 6.50% Exempt Yes No
W.Va. 6.00% Exempt Yes No
Wis. 5.00% Exempt No No
Wyo. 4.00% Exempt Yes Yes
D.C. 6.00% Exempt No  No
(a) Alaska, Delaware, Montana, New Hampshire, and Oregon do not levy taxes on groceries, candy, or soda. (b) Three states levy mandatory, statewide, local add-on sales taxes: California (1%), Utah (1.25%), and Virginia (1%). We include these in their state sales tax. Source: Bloomberg Tax.

Was this page helpful to you?

No

Thank You!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation

Related Articles

The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

A 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.