Do You Pay Sales Tax on Water?
It’s July, and here in Florida, like many places, it’s HOT outside. Like, unbearably hot. It doesn’t take more than a few minutes outside before you start feeling thirsty. Try going for a bike ride or run, and about 5 minutes in, you’ll start actually fantasizing about a tall glass of ice cold H2O.
Water is ubiquitous – we drink it, cook with it, bathe with it, swim in it. Water is one of the basic necessities of live. Without it, we would die. So would the rest of the planet.
One would think that something so prominent, so NECESSARY, wouldn’t be taxable. And in many cases, it isn’t.
But sometimes you actually pay sales tax on water!
Why? Because all water is not created equally.
It Depends on the Definition of Water
It sounds a bit like some political attempt to justify questionable behavior – but it’s true that in order to decide whether water is taxable, it depends on the definition. Is it tap water or bottled water? Flat or effervescent? Flavored? Does it contain sugar or artificial sweeteners or electrolytes?
In many cases, the water we need to live – which is plain old water, though perhaps filtered or bottled – is not taxable. But when manufacturers start adding sugar or other sweeteners, water goes from a staple to an optional item. A luxury, if you will. That’s when laws start to consider the product as a taxable good, because it no longer is the basic water we need to sustain life.
Take Indiana, for instance. Water in Indiana is never taxable, regardless of the distribution method, as long as it isn’t sweetened. According to Sales Tax Information Bulletin #29, "Water mixed with sweeteners would be considered a soft drink, and therefore taxable.". (For what it’s worth, it appears to me that Indiana likes to use the term "pop" instead, but whatever.)
Florida is a little more restrictive: water, including bottled water, is not taxable…unless it contains flavoring or carbonation, per their document "Sales and Use Tax on Restaurants and Catering." So even if the water hasn’t been sweetened, if it has any sort of flavor, or if it’s just unflavored and unsweetened sparkling water, it’s taxable.
Sometimes, straight up flat water without sugar or flavoring may still be taxable. In New York, if you want to avoid sales tax, you’d better learn to drink from the tap. (Or again, since it’s summer, the garden hose is another option.) That’s because New York taxes bottled water. Check out this list of taxable food items in New York. It’s fairly interesting, not to mention somewhat random – take a look at what cocktail mixers are taxable and which ones aren’t included on the list!
But sometimes even bottled water depends on how it’s purchased. California has weird tax laws that apply to food sales made through vending machines. In this case, water is taxable, although at a lower effective rate, when sold through a vending machine. But buy it at the corner gas station or your local supermarket, and you won’t pay sales tax.
You’d better believe people have something to say about the way water is taxed!
There’s a group called the International Bottled Water Association. They firmly hold that bottled water should not be taxable under any circumstances – no matter how it’s sold. They make a good point. Although water quality in the United States is generally pretty good, some people need to get their basic water needs met through bottled water rather than tap water. This includes some immuno-compromised individuals, as well as people living in an area where a natural disaster may have affected the water supply. Even routine water main breaks give rise to boil water notices within an otherwise stable community. If you take this into consideration, bottled water can easily be seen as a necessity instead of a luxury.
Click here to read more about the IBWA’s position, and see if you agree with their stance that bottled water implements an undue, burdensome tax on something that is necessary to life.
On the other hand, Laura Bliss from The Atlantic feels differently. In her article The Case for Taxing Bottled Water, she provides several reasons why taxing bottle water is important: water is not difficult to obtain; plastic bottles are harmful to the environment; and the water limitations enforced as a result of drought (specifically the massive California drought) largely don’t apply to bottled water companies, making it more difficult to track water usage.
Do you sell water?
The sale and therefore taxation of water doesn’t play into online commerce too much, since most people who purchase some form of water do so locally various brick-and-mortar stores. If you do happen to sell water, being aware of the laws that affect its taxability in states where you operate is pretty important. Even if not, it’s a good illustration of how confusing sales tax legislation can be. Water is just one of the types of products that often have a wide variety of different tax laws applied to them.