I recently read this article from the Thomson Reuters/RIA web service and just had to share it because I found it amusing and cannot believe chocolate is taxed as candy at 9.5% vs. food at 2%…well, okay, with taxes and government I can believe almost anything – it’s just crazy!
Sales Tax Setback for Illinois Chocoholics
A recent self-conducted survey confirmed that 100% of anonymous Chicago-based Shop Talk editors (all two of us) are habitual chocoholics. At the time of our survey one of us (let’s call him “Shelly”) had in his credenza a half-finished box of chocolate malted milk balls, ten bags of M&M’s coconuts, and six bags of M&M’s pretzel chocolate candies, which he claims to graciously share with secretaries and attorneys located nearby. Your other editor (let’s call him “Dick”) had just consumed a Hershey’s Dark Chocolate Bar before being polled on his confectionery proclivities. It should come as no surprise to our readers, therefore, that recently released Illinois guidance on the state sales tax treatment of dark chocolate gave us a contact high on two of our favorite topics: chocolate and taxes. (We considered as an alternative title for this column, “Shop Talk Salivates on Dark Chocolate Sales Tax.”) Is dark chocolate a “candy” or “food”? In Illinois, at least, it makes a difference. The issue arose last October 8 when an Illinois taxpayer inquired about the propriety of taxing dark chocolate as candy, rather than as food, given the reported health benefits of dark chocolate. The letter of inquiry to the Illinois Department of Revenue (IDOR) stated as follows: “On September 28, 2010, I bought four packages of Moser Ross Premium Dark Chocolate 70% Cocoa at [store/location]. The price per package was $1.69 and the total for four was $6.76, so I was surprised when the cashier said that the total with tax was $7.40. I thought the tax would be about 2%, but she said it was 9.5%. “On Tuesday, October 5, I called 1-800-732-8866 [the IDOR phone line] and spoke with Manina. I asked why I was charged the 9.5% tax. She checked and said that the law was changed, effective on September 1, 2009, to say that chocolate candy should be considered candy, not food, so it’s been charged at the higher rate of 9.5%. “For several years, I have read articles stating the health benefits of dark chocolate. I had been buying it regularly at [store], eating one or two bars each day. Since I usually buy the dark chocolate along with other food, I didn’t notice the higher tax rate until last week, when I bought only the chocolate. “I am enclosing a copy of an article from WebMD that explains the heart benefits of dark chocolate, as well as an empty package, which lists ingredients and nutrition facts. Therefore, I believe it should be taxed at the 2.25% rate for food. “I look forward to hearing from you soon.” On October 26 (a mere 18 days after the information request, but a timely five days before Halloween), Debra M. Boggess, IDOR Associate Counsel, responded (see ST 10-0097-GIL) as follows: “All gross receipts from sales of tangible personal property in Illinois are subject to Retailers’ Occupation Tax and Use Tax unless an exemption is specifically provided. Qualifying food, drugs, medicines and medical appliances are not taxed at the general merchandise rate of 6.25%. These items are taxed at a lower state rate of 1% plus any applicable local taxes. See 86 Ill. Adm. Code 130.310 and 130.311. “Food that is to be consumed off the premises where it is sold (other than alcoholic beverages, soft drinks, and food that has been prepared for immediate consumption) is taxed at the rate of 1% plus applicable local taxes. Food is defined as any solid, liquid, powder or item intended by the seller primarily for human internal consumption, whether simple, compound or mixed, including foods such as condiments, spices, seasonings, vitamins, unsweetened bottled water and ice. Beginning September 1, 2009, all candy is taxable at the State 6.25% general merchandise rate. Candy is defined as a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. Candy does not include any preparation that contains flour or requires refrigeration. “The law that changed the tax rate on candy did not distinguish between dark chocolate and other types of candy for purposes of imposing sales tax at the high rate.” As the anonymous taxpayer-letter writer professes to eating one or two bars of dark chocolate daily, we estimate he or she plans on spending $925.27 per year (that’s 1.5 candy bars per day × $1.69 × 365 days), and therefore his or her Dark Chocolate (DC) plan contributions annually are $67.08 in total state and local taxes (assuming a 7.25% differential between the food and candy rates, as described in the letter). The writer obviously was sufficiently perplexed by this result so as to call and then write to IDOR. In light of the fact that chocolate is addictive (and dark is darkly addictive), it would be fair to assume that the letter writer is concerned about paying the Illinois sales tax differential not merely for one year, but for the rest of his or her life (extended as it may be by the alleged health benefits of dark chocolate). We were curious about the particular product which was the source of the inquiry. We searched Google for “Moser Ross” and, getting no hits for a chocolatier with that name, eventually found our way to Moser Roth, maker of such fine chocolates as dark chocolate, orange, and almond; milk chocolate; dark chocolate with 70% cocoa butter; milk chocolate caramel; and an 85% cocoa dark chocolate. See McWeeney, “Moser Roth Chocolate, €1.59, Aldi Stores” in the Health section of Independent.ie (9/8/08) (www.independent.ie/health/moser-roth-chocolate-8364159-aldi-stores-1471357.html). The article states that the “subtle taste of the Moser Roth range will appeal to chocolate lovers everywhere, and remember that, in terms of the health benefits to be gained from eating small amounts of chocolate, the darker the chocolate, the better it is for you.” We should point out that, antioxidants aside, the nutritional aspects of Moser Roth Premium Dark Chocolate 70% Cocoa are not, shall we say, super-healthy. There are 260 calories in the Moser Roth Premium Dark Chocolate 70% Cocoa bar (with a serving size of seven squares), which provide 29% of the daily value of total fat and 55% of the daily value of saturated fat. See http://www.livestrong.com (we are not sure how many squares there are in 1.5 candy bars). Full disclosure, Shop Talk-style: neither of your Shop Talk editors has knowingly ingested a Moser Roth Premium Dark Chocolate 70% Cocoa bar, nor owns stock in Moser Roth directly or through a fund, escrow, brokerage account, disregarded entity, LLC or series therein. IDOR issues a General Information Letter (GIL) to direct taxpayers to Department Regulations or other sources of information regarding the topic about which they inquired. A GIL is not a statement of Department policy and is not binding on the Department; see 2 Ill. Adm. Code 1200.120. We have little doubt, however, that IDOR would reach the same conclusion with respect to Moser Roth’s 85% cocoa dark chocolate—and Dick’s Hershey’s Dark Chocolate Bar, as well. (Sorry, Dick.)