Just when you thought the chaos created by the Streamlined Sales Tax (SST) agreement could not get any more comical, they recently decided to clarify when flavored water becomes a soft drink. I’ve long been critical about how this group can micro-manage the sales tax rules of the member states and this is just another example of the hoops companies must jump through to understand the taxability of the products they sell. On the flip side, this also shows how little control the states have over their own tax rules once they become a member of the SST. I know that this is an important issue for the retailers, but the problem was created by the SST project when it forced states to comply with these definitions.
The new ruling clarifies that flavors and essences added to water do not constitute “soft drinks” as long as there is no sweetener added. Once sweetener is added, the drink become a soft drink and may become taxable as food.
Ned Lenhart, CPA