Taxing Pumpkins and Other Strange Sales Taxes

When I read a recent entry from The Tax Foundation I didn't know whether to laugh or cry. Here's a snippet:

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 tax to more closely match what we believe to be their predominant use.

[snip]

Pumpkins are exempt in the following circumstances:

* The buyer completes a sales tax exemption 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.

See the entry for the full details.

The FairTax may look good now, but just wait until the legislators get a hold of it. I'd be surprised if they can keep the number of exemptions and special cases in the FairTax to under 50,000.

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.