Post originally appeared on the Avalara Blog on October 30, 2015.
Turkey and taxes. The U.S. has a long history of both. And in 2010, the two converged in Virginia as part of an annual Thanksgiving tradition where tribal and state leaders pay homage to a more than 330-year-old treaty: then-governor Bob McDonnell was presented with a turkey (and two deer) by tribal chiefs in lieu of taxes. Unfortunately, paying taxes in trade doesn’t work for most of us. Depending on where and how you celebrate this year, your Thanksgiving feast could be served up with a side of sales tax.
Home cooking. Stop by your local supermarket for your traditional Thanksgiving dinner fixings – turkey, potatoes, cranberries, pumpkin, etc. – and you won’t pay sales tax on those food items in most states. That’s most, not all; 14 states tax groceries at either the full sales tax rate or a reduced rate. These states are Alabama, Arkansas, Hawaii, Idaho, Illinois, Kansas, Mississippi, Missouri, Oklahoma, South Dakota, Tennessee, Utah, Virginia and West Virginia. Buying local? Some states, like Virginia, consider farmers and co-ops that sell at outdoor markets or through Community-Supported Agriculture (CSA) programs or websites to be engaged in “direct marketing.” Since they sell to consumers or end users, sales tax is collected on taxable goods and must be separated out from the item price. Some states, like Kansas, also require sales tax to be collected on monthly CSA subscription fees.
Eat out. Don’t feel like cooking? You’re not alone. An estimated 14 million Americans go to restaurants on Thanksgiving. Choose to dine out and there will be fewer dishes to wash but more sales tax to pay. Fifteen cities impose an additional tax on top of state sales tax for restaurant meals. These cities are Boston, Charlotte, Chicago, Denver, Indianapolis, Jacksonville, Kansas City, Miami, Milwaukee, Minneapolis, Omaha, Raleigh, Seattle, Virginia Beach and Washington DC. The add-on tax ranges from .05% in Milwaukee up to 5.50% in Virginia Beach.
Get it to go. Buy your pie already baked or get your potatoes pre-mashed from the deli and you’ll pay a little extra for the convenience. A number of states, including Minnesota, tax prepared food. This can include food that is heated before sale; food where two or more ingredients are mixed together; and food sold with eating utensils. So whether you order take out from a restaurant or a complete Thanksgiving feast from supermarket catering, you’ll likely pay sales tax.
Get it delivered. Nowadays you can get gourmet meals delivered right to your door through popular food retailers like Harry & David and Williams-Sonoma and culinary services like Blue Apron, Platejoy and Freshly. You can shortcut having to shop or cook, but you can’t short change the state when it comes to sales tax. If you only receive fresh or frozen ingredients in their original form or package, then you would be taxed according to food taxability rules for your state. If any of the items have been re-packaged, combined, prepped or pre-cooked, then state sales and use tax rules for prepared items would apply.
Hire a chef. In some states, like Washington and California, personal chefs or professional cooks are considered independent contractors and services provided by the chefs are subject to retail sales tax. The amount of tax is determined by where the customer receives the prepared food. In the case of a home-prepared Thanksgiving meal, the sale tax rate would be based on the jurisdiction in which the host resides. Want to save a few bucks? Supply the ingredients. You’ll only pay sales tax on the taxable items. If the personal chef does the shopping, the food is considered part of the service and, therefore, taxable.
When it comes to complex sales tax rules, the states really know how to pile it on as you can see in 50 states. 50 Sales Tax Rules. 100% Frustrating. Having a hard time stuffing it all into your brain? Be thankful there’s something easier: Avalara’s AvaTax sales tax automation software.