8 ways your products may have the sales-tax life cycle of a lemon

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The lemon is a simple fruit. The sales-tax life cycle 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 eight 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 an exempt or reduced-rate food if packaged to be eaten (Massachusetts, Missouri) – unless it is in a package of less than 2.5oz (Texas); exempt if for agricultural use (Kentucky); exempt if sold in bags of under 25 lbs (Nebraska); or taxable where no exemptions exist (Alabama, Colorado).

2. Lemon tree

As a tree, a lemon can be treated as an exempt fruit tree (Arizona, California, Vermont) or taxable where that exemption does not exist (New Mexico, Nevada, North Dakota).

3. Lemon as a fruit

As a fruit, a lemon may be exempt (Massachusetts, Nevada, Wisconsin) or reduced rates (Missouri); or taxable where there is no such exemption or reduced rate (Mississippi, South Dakota).

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 (Missouri); taxable in states with a narrow definition of food and no prepared food rate (New Mexico); or subject to a special meals tax for state with a prepared food rate (New Hampshire). Note here that New Hampshire is one of the “NOMAD” states (e.g., the five states that do not impose a state-level, sales-and-use tax. These states include Oregon, Montana, Alaska, Delaware) 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 (Massachusetts) or reduced food rate (Missouri). Where there is no such exemption, pre-packaged frozen lemonade is taxable (Hawaii).

6. Lemon martini:

As an alcoholic beverage, a lemon may be subject to not only the restaurant taxes that exist around the country (Arizona, Kentucky, Massachusetts, New Hampshire, Washington, etc), but also to additional alcohol taxes (Idaho and Texas).

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 (Illinois, New York, Pennsylvania) or if they are given under a prescription (Texas).

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 Washington, D.C., Florida, and Connecticut; reduced rate of 1% in Illinois; taxable in Alabama, Alaska, and Arkansas.

Find more information on taxes of all kinds using this small business tax guide.

This article originally appeared on the QuickBooks Resource Center and was syndicated by MediaFeed.org.

Featured Image Credit: DepositPhotos.com.