Want to Save (S’More) Money on Marshmallow Taxes?

Like a Magritte painting, we are not eating what we think we are eating:

Similarly, a potato crisp is not really a potato crisp.

Food Taxes

In 2008, we had the “Great Pringles” decision.

Because a British appeals court noted that the circular snack was only 42% potato, the 17.5% value added tax (that was paid by makers of “potato crisps, potato sticks, potato puffs and similar products made from the potato, or from potato flour, or from potato starch”) did not apply. They thereby saved Proctor & Gamble millions of dollars.

Then, somewhat differently, and much more recently, a British court decided that Walkers Sensations Poppadoms were taxable potato crisps:

With marshmallows, it gets even more interesting.

Also, in Great Britain, (after two months, perhaps, of sampling s’mores), a court decided that a large marshmallow was a tax exempt ingredient.

Meanwhile, in the United States, it all depends. Michigan does not tax a marshmallow because it is food. However, Indiana taxes bags of marshmallow but not marshmallow creme. Then, offering a third opinion, New York calls a marshmallow a tax exempt baking ingredient but not if it is covered with chocolate or candy.

Our Bottom Line: Tax Types

Taxes redistribute income. They transfer revenue from a source of revenue to a recipient. At this point though, the variables are unlimited. To determine a taxable item, countries, states, and smaller municipalities have to define the item. From there, they also have to determine who bears the incidence of the tax. If the tax is progressive, like the U.S. income tax, then a more affluent cohort pays a higher percent of their income. With a proportional tax, everyone pays the same percent of their income. And finally, returning to marshmallows, the tax is regressive. Whenever, the tax is the same amount for all of us, it is regressive because the less affluent hand over a higher proportion of their income.

My sources and more: Thanks to one sentence (or so) in a Laura Saunders’ WSJ tax column for inspiring today’s post. From there, the Tax Policy Center had much more detail as did these articles, here and here, from the NY Times. But for more, this econlife had the unlikely consequences of the window tax. Do take a look.