Whether you prefer the tricks or the treats, there’s a good chance you’re going to celebrate Halloween this year. It’s estimated that nearly 175 million Americans will participate in some sort of Halloween observance, spending nearly 9 billion dollars - yes, that’s a “B” ! - on the festivities. The most popular Halloween activities are handing out candy, decorating the house, and wearing a costume. This spending can be a big boon to state and local governments as they collect sales tax on our seasonal purchases.
Most of us buy candy to give to Trick or Treaters (and to eat ourselves!). Halloween candy sales are expected to exceed $2.6 billion. Since sales tax is governed by state law, the tax on candy can vary from state to state. Some, such as Oregon and Montana, don’t have a sales tax, so obviously candy purchased there is tax-free. Other states can be a bit more complex.
For example, in South Carolina candy purchased “to be eaten off premises” is not taxed at the state level but is still subject to local sales tax. In New York, whether or not a candy bar is taxed depends upon how it is paid for. In North Carolina, most food is taxed at 2%. Back in 2014, it was found that many stores across the state were overcharging sales tax on candy, wrongly using the higher general tax rate. It was argued that candy containing flour, such as Twix or KitKat bars, met the guidelines for “food” and should therefore get the advantage of the lower food tax. (So when you’re eating the leftover KitKats on Thursday morning, you are eating “real food”!) This graphic provides an interesting look at how each state taxes candy.
In recent years, it’s become popular for parents to implement a “candy tax” on their kids’ haul. While done mostly in jest, these parents seize part of their children’s candy, claiming it’s a fun way to introduce their kids to the reality of taxes. One blogger has created a printable candy tax form to help compute the correct tax rate. We assume other parents simply stick to the time-honored tradition of swiping the best stuff (in North Carolina, M&Ms, Reese’s Cups, and Snickers are the most popular candy) while the kids aren’t paying attention.
Halloween décor is becoming increasingly popular, with many setting up lavish displays. Some $2.7 billion will be spent on spooky decorations this year. Unlike candy, there are no special exceptions to the general sales tax on these items. Buying fake coffins sends a lot of money to government coffers!
Consumers are expected to spend over $3 billion on costumes this year. It seems adults prefer to transform themselves into witches and pirates, while kids want to be princesses and superheroes. Almost 20% of us will buy a costume for our pets, dressing them up as pumpkins, hot dogs, or other animals. Some states, like Minnesota and New Jersey, don’t tax clothing but do impose the normal sales tax on wigs, masks, and other accessories. North Carolina charges regular tax on costumes for humans and animals.
In addition to generating sales tax for state and local governments, Halloween spending is seen as an important indicator of consumer spending during the upcoming holiday season. As you go about your final preparations for Fright Night, we urge you to patronize your community’s small businesses. Not only will your sales tax stay local, you’ll help the businesses provide jobs and services for your hometown. And that’s nothing to be afraid of!