December 13, 2018 Sales Tax en_US Sales tax seems simple for a lemon, but it becomes a lot more complicated depending on how you use that lemon. The Sales Tax Life-cycle of a Lemon
Sales Tax

The Sales Tax Life-cycle of a Lemon

By Anna-mary Geist December 13, 2018

The lemon is a simple fruit. The Sales Tax life of a lemon, however, is not simple by any means. Depending on the state of the lemon, the item the lemon becomes, or the packaging that the lemon is in, many different sales tax rules can apply.

The item may go from completely taxable to completely exempt and anywhere in between.

The sales tax of a lemon is made far more complicated if your business is selling products in multiple cities, counties, or states. Here’s a look at 8 different ways the products you sell could use a lemon.

The detail of each lemon product will give you insight into the difference in tax treatments that can apply depending on the makeup of the product, and the location of the sale.

1. Lemon seed:

As a seed, a lemon can be treated as exempt or reduced rate food if packaged to be eaten (MA, MO) – unless it is in a package of less than 2.5oz (TX); exempt if for agricultural use (KY); exempt if sold in bags of under 25 lbs (NE); or taxable where no exemptions exist (AL, CO)

2. Lemon tree:

As a tree, a lemon can be treated as an exempt fruit tree (AZ, CA, VT) or taxable where that exemption does not exist (NM, NV, ND)

3. Lemon as a fruit:

As a fruit, a lemon may be exempt (MA, NV, WI) or reduced rates (MO); or taxable where there is no such exemption or reduced rate (MS, SD)

4. Fresh lemonade:

As fresh lemonade at your favorite summer restaurant, a lemon may be exempt in states that have a broad definition of food and no separate restaurant rate (MO); taxable in states with a narrow definition of food and no prepared food rate (NM); or subject to a special meals tax for state with a prepared food rate (NH). Note here that NH is one of the “NOMAD” states — aka: the five states that do not impose a state-level sales and use tax – NH, OR, MT, AK, DE — so they don’t have a general sales and use tax.

5. Pre-packaged frozen lemonade:

As prepackaged frozen lemonade, a lemon is considered food for home consumption in many states and entitled to an exemption (MA) or reduced food rate (MO). Where there is no such exemption, pre-packaged frozen lemonade is taxable (HI)

6. Lemon martini:

As an alcoholic beverage, a lemon may be subject to not only the restaurant taxes that exist around the country (AZ, KY, MA, NH, WA, etc), but also to additional alcohol taxes (ID, TX)

7. Lemon body butter:

As a body butter, a lemon turns into something totally different from the food and drink we see above, and a new set of Sales and Use Tax rules apply. In many states, there is no exemption for personal and hygiene items, but some states have an exemption or reduced rate for these items if they contain a drug fact panel or statement of active ingredients (IL, NY, PA) or if they are given under a prescription (TX).

8. Lemon as a dietary supplement:

As a dietary supplement, a lemon becomes the most complex. Is it food? Is it a medicine/vitamin? Is it something completely different? Of course, the answer depends on the state. Some examples of taxability that you will find supplements exempt in DC, FL, and CT; reduced rate of 1% in IL; taxable in AL, AK, and AR.

Whatever “state” your lemon is in, QuickBooks Sales Tax can save you time and stop things from turning sour. The time you save can be spent running your business. QuickBooks Sales Tax not only provides automated calculations but also provides tax categories which can be assigned to individual products and services so businesses can be sure sales tax is accurately calculated to the line item; when it should be and how it should be.

Whether your business sells lemon trees, body butter, or provides shipping of fresh fruit, QuickBooks Sales Tax has it covered.

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Anna-mary Geist is a Tax Manager on the Intuit team responsible for sales tax calculation and filing inside QuickBooks, a part of the Small Business and Self Employed Group. She focuses on providing the tax content that drives sales tax calculations in nearly 12,000 tax jurisdictions across the United States. Anna-mary is also a licensed attorney. Read more