Halloween shoppers have many delicious decisions to make before trick-or-treaters show up at their doors. And in many states, those choices will change how much tax they pay.
In Illinois, for example, residents pay a higher state sales tax rate on Reese’s peanut butter cups, gummy worms and Hershey’s milk chocolate bars – 6.25% – than on Twix, Twizzlers and Hershey’s Cookies ‘n’ Creme bars – 1%.
Trying to distinguish between these two groups of treats may be devilishly hard for shoppers, but to the Illinois Department of Revenue, the difference is simple. The first three are candy, and the second three are not.
This example illustrates how state sales taxes can affect taxpayers, retailers and Halloween candy shoppers in unexpected ways.
The importance of sales taxes
From states’ perspectives, there is a lot to like about sales taxes, which are the levies you pay when you buy a cup of coffee or new computer. Forty-five states have sales taxes ranging from 2.9% in Colorado to 7.25% in California. The rate can be even higher in some cities that also have a local sales tax.
Research has found that taxpayers don’t seem to pay much attention to how much they pay in sales taxes. This makes sales taxes politically appealing sources of revenue.
Not only that, states don’t have to do a lot of work in the process since businesses must collect the taxes at the point of sale, which streamlines enforcement.
For these reasons, states rely heavily on sales taxes to fund their governments. In 2019, sales tax accounted for about 31% of states’ tax revenue, making it the second-biggest source behind income taxes.