Defining Candy: the Candy Tax
What is candy, anyway?
You probably know it when you see it. Sweet, a treat, chocolate and sugar and nuts and crispy rice… well, lots of different ingredients. But sweet, definitely. Of course, everything sweet isn’t candy. So where do we draw the line?
Most of the time, it probably doesn’t matter much, since each of us makes our own personal determinations of what and when and how much to eat. But there is one arena where definitions matter a lot: the law.
On April 12, 2010, the Washington State Legislature passed a sweeping revenue bill that includes, among other items, a new “Candy Tax” expected to raise over $30 million in the first year. For a state facing dire budgetary choices, taxing candy is particularly attractive. Illinois passed a candy tax last fall. But unlike similarly targeted taxes on goods like gasoline or cigarettes or even sweetened drinks, implementing the candy tax raises a problem: what, exactly, is candy?
In attempting to define the essence of candy for the purposes of taxation, law makers have produced what many observers describe as a regime of confusion and arbitrariness. Washington has joined many other states in the Streamlined Sales and Use Tax Agreement, which defines “candy” 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” shall not include any preparation containing flour and shall require no refrigeration.
The “no refrigeration part” excludes ice cream and frozen confections like Popsicles. That one has been pretty uncontroversial. But the “no flour” part, meant initially to exclude snack cookies and baked goods, has caused some consternation.
Opponents have been quick to exploit the absurdities of drawing the line between candy and not-candy with flour. A chocolate coated dried cranberry is candy. A chocolate coated pretzel is not. A regular Hershey’s Milk Chocolate Bar is candy. Hershey’s Cookies ‘n’ Creme Bar is not. Candies like Twix, Kit Kat, and licorice products will escape the tax. On the other hand, in theory at least, energy bars, breakfast bars, and meal replacement bars, not commonly categorized as candy, could be taxed as candy unless they contain flour.
The problem is, if you’re going to tax candy, you have to describe it in a way that everyone can know what will fall under the tax. The definition in the Streamlined Agreement has been around since 2002; despite the manifest problems, no one has been able to come up with any thing better.
This isn’t the first time the definition of candy has caused problems for the tax man. An excise tax on candy was first proposed in Congress as part of the War Revenue Act of 1917. Through the lobbying efforts of the National Confectioners Association, the tax was defeated, although many other products were subject to a special tax. In 1918, again Congress looked to candy as a source of revenue, and imposed a 10 percent tax on manufacturers’ sales. This time, there was nothing the NCA could do. The war demanded sacrifice, and every American and business was expected to do their patriotic best.
But if there was going to be a special tax on candy, the definition of candy would matter. National Confectioners Association proposed something like this in 1919:
Candy is a wholesome manufactured article of food of a solid or semi-solid consistency, produced principally from one, or a combination of two or more of the following ingredients, to wit: Cane, beet or sucrose sugars and invert sugars; maple sugar; grape sugar; molasses; maple syrup; corn syrup; cane syrup; sorghum; malt sugar; malt syrup; starch; flour; edible nuts; fruits; honey; milk; cream; butter; coconut; eggs; gum arabic; gum trangacanth; licorice; gelatine; flavoring extracts; essential oils; harmless colors; cocoa; chocolate; cream of tartar; fruit acids; popcorn; rice and other cereals and cereal products; vegetable oils and many other wholesome food ingredients, and manufactured, formed and designed or intended to be a pleasing and palatable food in the form of a sweetmeat.
This definition uses the word “food” twice. It’s not accidental that the NCA would advocate the idea of candy as food. Consumers who would eat more if they thought of candy in terms of its food value, and the government would tax candy less heavily as a food than as a luxury item.
The IRS chose a more straightforward definition:
Candy, within the meaning of the act, includes chocolate creams, bonbons, gum drops, jelly drops, jelly beans, imperials, caramels, stick candy, lozenges, taffies, candy kisses, wafers, fudges, or Italian creams, nougats, peanut brittle, sugared almonds, chocolate covered fruits, and nuts, glace or candied fruits and nuts, popcorn and other cereals and cereal products mixed with or covered with molasses, sugar or other sweetening agent, hard candies, plain and chocolate covered marshmallows, candy cough drops and sweetened licorice not taxed as cough drops, sweet chocolate and sweet milk chocolate whether plain or mixed with fruit or nuts; and all similar articles however designated.
The IRS explicitly excluded “cereal breakfast foods, cake and pastries, nor bitter chocolate which needs the addition of sugar before it becomes pleasing to the taste” and also goods “used in the manufacture of food products, such as ice cream, cakes, and pastries.” For clarity, the IRS spelled a lot of things out in detail. But if you look at the definition, it really seems to say: “candy is candy.”
Chocolate manufacturers hoped for a loophole. After all, chocolate had many uses, like making hot cocoa or flavoring a cake. And chocolate, unlike sugar candies, was widely recognized as an important food. Walter Baker Co., the chocolate manufacturer, decided to test the law. In 1921, he petitioned the IRS for a return of $35,000 in taxes he had paid his chocolate products. His argument was basically that chocolate was a food stuff, no matter what form or purpose it was being sold for, and therefore that the tax had been collected in error.
In the final appeal in 1922, District Court Judge James B. Morton rejected Baker’s claim. Judge Morton insisted that for the purposes of the tax, “The distinction [between candy and food] turns not so much on the composition of the article as on the way or form in which it is sold and upon the use made of it by purchasers.” The Judge didn’t see any confusion between cocoa sold for baking and chocolate bars sold for eating, even if both were made of the same basic substance. Back then, candy was obviously candy. Candy was sold in particular forms, sold in particular places, eaten in particular ways that made it obvious to Judge Morton that certain things were candy and certain things were not.
The problem for the drafters of the candy sales taxes today is that we’ve lost that sense of distinction. The definition of candy in Judge Morton’s view was just common sense: “candy is in its main characteristics sugar compounds, intended for luxury, taste-gratifying, consumption.” But today, don’t we expect all our food to be luxurious and taste-gratifying? As David Kessler argues in The End of Overeating, what makes foods most desirable to our palates is the combination of sweet, fat and salt–a combination that reaches its apotheosis in the Snickers bar. The enticing combination of sweet, fat and salt in greater and greater portions has been exploited by the food processing industries to engineer foods that most Americans find irresistible. These are the packaged, branded and advertised foods that “real food” advocate Michael Pollan has concisely described as “edible food-like substances.”
Once you penetrate the marketing mystique, many of these “food-like substances” look an awful lot like candy. It’s not just the energy bars that are virtually indistinguishable from candy bars. It’s the “healthy” snacks that, under the guise of virtuous ingredients like fruit juices and yogurt, are mostly sugar and flavor. It’s the sweet beverages that have, with some justification, been called “liquid candy.” It’s the grab-and-go breakfast foods that start with high fructose corn syrup and end with marshmallows and chocolate chips.
We generally aren’t too keen to acknowledge the candification of our diet. Quite the contrary: “candy” has become an easy scapegoat for our dietary woes. That’s part of the reason candy taxes are so popular: some people even refer to them as “sin taxes.” Even the candy industry is working to distance itself from candy, at least as a word: this year, the biggest confectioners’ trade show, formerly known as “All Candy Expo,” has been renamed the “Sweets and Snacks Expo.”
Judge Morton’s certainty back in 1922 that candy was a discrete kind of food and used in discrete ways bears no relation to the current landscape of “sweets and snacks.” The candy tax assumes that there must exist a bright line between candy and not-candy. But today, there really isn’t. The resulting legal absurdity is not so surprising: it is nothing but a reflection of our own confusion about where food ends and candy begins.
Sources: About the 1919 Excise Tax: Report of the 36th Annual NCA Convention, Springfield Illinois, May 14-16 1919. Published in Confectioners Journal June 1919, pp. 94-108. Malley v. Baker, First Circuit Court of Appeals, May 17, 1922. About the current candy tax and passage in Washington State: Streamlined Sales and Use Tax, adopted Nov. 12, 2002 and as amended through Sept 9, 2006; “candy” defined on p. 123. Washington State candy tax coverage here and here
Fascinating reading about the state of the candy industry in 1921 is in contained in the discussion of the candy exise tax during the Hearings on Internal-Revenue Revision before the Committee on Ways and Means, U.S. House of Representatives, July 26-29 1921. The NCA sent H. Fuller as representative to testify against the tax on manufacturers. Read the testimony here (pages 244 ff).