Candy Tax with Bittersweet Controversy

I was reading a news article today on something that is causing somewhat a stir between groups of people (what topic doesn’t, honestly?).  It was an article talking about taxing candy.  There are currently two states that has made taxing candy a law, and those states are Colorado and Washington.  Here is the article.

There are many controversial issues surrounding the taxing on candy.  The first controversy is the criteria of candy.  According to the article posted above and The Washington’s Department of Revenue:

“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. Candy 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.”

The second controversy surrounding this tax (and the more important) is the use of the money coming from taxing these sugary treats.  Washington and other states are considering taxing candy in order to overcome their budget deficits.

Let’s address the first controversy, shall we?  The fine line between what is candy and what is not will be debated heavily.  Let’s take Kit Kat for example, which is made with flour.  According to the “criteria” of candy, Kit Kat would not be taxed.  Why?  Because it’s not considered as candy that can be taxed.  However, M&Ms would be taxed since the ingredients, as stated on the bag, does not contain flour.  How about Airheads?  As I’m looking at a bag of Airheads now, the ingredients do not specifically contain flour.  However, right below the ingredients, it specifically states “Manufactured in a facility that processes wheat flour.” Should Airheads be taxed in this case then?

Well, after looking at the list of taxable and non-taxable candies according to Washington’s Department of Revenue, here is the status of Airheads (taken from http://dor.wa.gov/Docs/Pubs/ExciseTax/RetailSales_UseTax/CandyList.xls)

Airhead Pops	Taxable	Perfetti/Van Melle	5/6/2010
Airheads Singles Sour	Taxable	Perfetti/Van Melle	5/6/2010
Airheads Xtremes, Strawberry	Exempt	Perfetti/Van Melle	5/26/2010
Airheads, Blue Raspberry	Taxable	Perfetti/Van Melle	5/6/2010
Airheads, Checkstand Pack, Asst.	Taxable	Perfetti/Van Melle	5/6/2010
Airheads, Cherry	Taxable	Perfetti/Van Melle	5/6/2010
Airheads, Green Apple	Taxable	Perfetti/Van Melle	5/6/2010
Airheads, Strawberry	Taxable	Perfetti/Van Melle	5/6/2010
Airheads, Watermelon	Taxable	Perfetti/Van Melle	5/6/2010
Airheads, White Mystery	Taxable	Perfetti/Van Melle	5/6/2010
Airheads, Xtremes	Exempt	Perfetti/Van Melle	5/26/2010
Airheads, Xtremes Sour Belts Tray	Exempt	Perfetti/Van Melle	5/26/2010

Sounds like a sticky situation indeed.  All Airheads Xtremes products are exempt from taxes.  After looking online on Airheads’ official website, it states that Xtremes contains wheat flour.  This would explain why some Airheads would be taxed, and why some are not.  I don’t think this is going to fly too well with the National Confectioners Association (Candy USA).

On to the second controversy:  Will the money gained from taxing candy actually be used to reduce the state’s budget deficit?  It’s no secret that many states believe in taxing products in order to gain financially.  It is worth it?  Let’s stick with Washington state again for this example.  According to numerous sources, including to The Sunshine Review and HearldNet, the state’s budget deficit is around $2.8 billion.  In my opinion, if this candy tax goes according to plan, and the amount of candy purchased by consumers stays at the same level, and the money is used to actually combat the state’s issues, then the candy tax is a good idea. If the money is put to other non useful purposes, then we have a problem, and the people will have a problem with the government.  The way Colorado and Washington plays out the implementation of the tax will be looked at by other state governments, trust me.

The candy tax could be served for purposes; one overt and one covert.  The overt purpose would be to reduce the state budget deficit.  What about the covert purpose, the purpose that is not known by the general public.  The covert purpose could be to limit the amount of candy consumed by children in order to promote a healthier way of living.  Remember how cigarettes were taxed to an oblivion?  Many people will argue that cigarettes were highly taxed in order to make people re-consider paying a high amount of money on them.  Could this be the same with candy?  Could candy be taxed to the point that children, or even adults, re-consider paying a certain amount for the sugary goodness?  I highly doubt it, considering the average price for candy such as a pack of Skittles or Starburst is still cheap.

I will be interested to see how this all plays out.  The new tax is supposed to take effect in Washington on June 1st, 2010 (tomorrow).  My state of Maryland is also trying to find ways to cut our huge budget deficit; I wonder if they’re paying attention.