Eating our way to fiscal responsibility

As part of closing the state budget deficit, our legislature has decided to tax a food item that has long been exempt: candy. Additional taxes have also been applied to gum, soda pop, and bottled water, and taxes are being raised again on beer and cigarettes. The recent tax hike on candy may not be as simple as it may seem at first glance. If your business sells candy, you need to be aware of which items are classified as taxable “candy.”

Quick test: Which one of these items is candy and now subject to sales tax?

  • Milky Way
  • Red Vines Licorice
  • BBQ Potato Chips

If you answered in the affirmative for #1 or #2 you are wrong. If you answered #3 BBQ Potato chips you are correct! OK, if you are confused right now then join the crowd.

What is candy? Per Washington State:

“Candy is a preparation of sugar, honey, or other natural or artificial sweeteners combined with chocolate, fruits, nuts, or other ingredients or flavorings and formed into bars, drops, or pieces. Candy does not require refrigeration and does not include any preparation containing flour.

Flour is made from grain such as wheat, rice, corn, rye, oats, and barley. Flour does not include flour substitutes, such as starch. Any product that lists flour as an ingredient on the nutritional facts label is not taxable as candy.”

Both Milky Way and Red Vines have flour as an ingredient and are not considered candy for purposes of the sales tax. BBQ Potato chips are sweetened, sold in pieces and do not contain flour. Thus some BBQ potato chips may fall under the definition of taxable candy.

So what is a business to do? A list of 9,620 sweet items that the State determined is candy or not candy can be found at the Department of Revenue’s website: (Microsoft Excel Document)

As a business owner it is important to charge sales tax on the correct items. If a business is audited by the state and did not collect sales tax on items that are taxable, then the state will assess the business for the tax that should have been collected. With tax rates at 8.6 percent in Kitsap County, a simple mistake or omission could create a tax exposure that adds up quickly.

Christopher Fraizer is a CPA with Waterfront CPA Group, Silverdale