A taxing question: What are your intentions with that pumpkin?

When you work at a company that sells sales tax compliance software, it has the potential to be a pretty boring job. In your mind’s eye, I’m sure you’re thinking about rows of cubicles with middle-aged men with short-sleeved button-up shirts with pocket protectors and 1950s hairstyles and glasses.

Avalara Team Picture

The folks at Avalara are never ones to shy away from wackiness, or from talking about tax compliance.

Not Avalara. No no no no no.

With their screaming bright orange flair, Avalara has a way of making you learn about sales tax compliance as if it were being taught by Captain Kangaroo. They have a way of taking a very serious message (the cost of being audited and fined is way more than proactively tracking your taxes) and weaving in the interesting and the oddball to help drive home their point.

So of course, I’m not surprised when I see a Tweet from Avalara go by that makes me laugh out loud:

Since I’ve never dreamed of having any bad intentions with a pumpkin, I had to read Gail Cole’s blog post for Wacky Tax Wednesday. It turns out, there was a law in Iowa that for tax purposes, consumers had to declare their intentions for their pumpkins when they bought them.

Pumpkins are exempt from tax, but jack-o’-lanterns aren’t

Iowa is one of 42 states that currently does not have a sales tax on food. But what if you were going to do something else with that pumpkin — like carve it for a Halloween decoration? Or sit a couple of them on your front stoop for a fall decoration?

So someone from the Iowa Department of Revenue realized they were missing out on a money-generating scheme loophole in the tax law. And this regulation was drawn up:

“In the past, pumpkins were exempt from sales tax as a food (edible squash), even if they were to be later made into jack-o’-lanterns or used as decorations. Our position now is that pumpkins are taxable if:

  1. They are advertised to be used as jack-o’-lanterns/decorations, or
  2. It is understood that they will be used as jack-o’-lanterns.”

Gail went on to say that buyers could purchase pumpkins without sales tax if:

  • They completed a sales tax exemption certificate stating the pumpkins would be used as food.
  • The pumpkins were (and were advertised) as a specific variety used to make pies.
  • The pumpkins were purchased with food stamps.
A pumpkin patch in Independence, VA

If these pumpkins were heading to Iowa, they might have been little tax nightmares waiting to happen.

Talk about needlessly complicated and annoying. But then again, that describes a good portion of government regulation.

I couldn’t imagine a check-out person in a grocery store having to quiz each customer who came through their line with a pumpkin about what they were going to do with it. I’m sorry, but if they wanted to make a jack-o’-lantern, make a pie, or name it Fluffy and keep it as a pet, that’s their business.

And this law only applied to pumpkins. If someone bought dried beans from the grocery store and used them for an art project, that means they’re no longer food items as well. But that’s OK, because they weren’t being advertised for art projects. And, well, they’re not pumpkins.

There are similar regulations that are on the books, and not necessarily for tax purposes. In Florida, if you want to buy fireworks, you have to sign a waiver to say that you were buying them to scare off nuisance birds. (Funny how everyone has a massive bird problem on July 4 every year.)

Imagining tax at a charity pumpkin patch

“I missed Tricks-or-Treats for the stupid Great Pumpkin, and we still have to tabulate sales tax on just the pumpkins we sold that would become jack-o’-lanterns?!”

It’s one thing if you’re a merchant used to dealing with taxes, but could you imagine requiring every charity pumpkin patch to ask each customer about what they were going to do with their pumpkin? When I lived in Tampa, you couldn’t throw a stone without hitting a church that hosted pumpkin patch fundraiser. I couldn’t imagine each one of them having to tabulate their taxable and non-taxable pumpkin sales, then having to fill out the correct documentation. These are cash-box operations with little accounting involved, and many times, involving children. (Granted, Avalara could help them with their tax compliance, but that’s not really the point.)

Luckily, according to Gail, the policy was brought to light on the Tax Foundation website after Joseph Henchman blogged about this on Oct. 26, 2007. Proving that the pen is mightier than the ridiculous tax regulation, the publicity forced the Iowa DoR to rescind the law.

This funny story has a hauntingly happy ending for this Halloween. But there are some scarier stories out there when it comes to tax regulation. And I can count on Avalara to keep the humor coming when they spread the news about tax compliance.

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