From pumpkins to costumes to candy, Americans are expected to spend up to $6.9 billion on Halloween sales in 2015. According to the National Retail Federation, 157 million Americans will scare up an average of $74 per person in Halloween holiday spending.
You know, of course, that I’m one of those folks who goes crazy for Halloween, contributing to the multi-million dollar holiday economy by buying candy, costumes and decorations. Spending at Halloween doesn’t just benefit Hershey and Mars, it also adds to the tax coffers.
As much as Halloween is important to me, spending on Snickers bars and princess costumes isn’t considered a necessity for most folks. Often, the imposition of sales and use tax is closely tied to whether an item is essential; that means that groceries and clothing, for example, will not be subject to sales and use taxes.
On the state level, almost every state imposes some kind of sales tax on certain goods and services. The exceptions are Alaska, Delaware, Montana, New Hampshire and Oregon. In some areas, there can be additional sales tax on top of basic state sales taxes, with totals topping 10% (click here to see where sales taxes are the highest).
In many states, including my own state of Pennsylvania, groceries are exempt from sales tax. While food items used in cooking may often be exempt from sales tax, prepared or ready to eat foods – like candy – are subject to sales tax. The rules can be tricky. Iowa, for example, claims that candy “shall not include any preparation containing flour and shall require no refrigeration” making a Milky Way Midnight taxable while the classic Milky Way is not. Overall, however, the $2.1 billion that merrymakers will spend buying Halloween candy this year is likely subject to tax. That affects a lot of people: nearly 94% of Halloween shoppers plan to buy candy in 2015.
When it comes to clothing, nine states exempt all or part of the cost of clothing from sales tax. Clothing is fully exempt in Connecticut, Minnesota, New Jersey, New Jersey, Vermont and my own state of Pennsylvania with three more states (Massachusetts, New York, and Rhode Island) exempting clothing up to a cap. However, ornamental clothing and costumes, aren’t considered everyday wear and are taxable in almost every state. Again, that’s good news for revenue since nearly $2.5 billion will be spent on costumes this year with most ($1.9 billion) being spent on adult costumes. For 2015, that $1.9 billion will allow adults to dress as witches (this year’s top adult costume); animal characters; “Batman” characters; zombies and “Star Wars” characters. An additional $950 million will be spent on children’s costumes and $350 million on costumes for pets.
Nearly half of shoppers – or 45% – will decorate for Halloween. Sales on decorations total just under $2 billion, with the average shopper spending $20.34. Most of those dollars will be subject to sales tax. Halloween decorations, in particular, can be confusing when it comes to taxes because everyday items can double as decorations. In 2007, taxing officials in Iowa came under fire for imposing a sales tax on pumpkins which they decided were used primarily for Halloween decorations (taxable) and not food (not taxable); an exemption was available if taxpayers filled out a form. Thankfully, the rule was reversed. Still, haystacks, cornstalks, and gourds can be confusing come tax time in many states: are they agricultural products or decorations?
That is, of course, one of the main criticism of sales taxes: they can be complicated. The different rates from state to state, combined with the numbers of exemption and special circumstances, confuse not only retailers but taxpayers who may have difficulties understanding why the pumpkin they might eat in September is now taxable in October or why a black dress you’d wear to dinner is different than the black dress that serves as a flapper costume at a Halloween party. When it comes to sales taxes, figuring them out can turn out to be more trick than treat.
What about you? Do you spend at Halloween? Chime in here.
