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EARLY CHRISTMAS FOR CHOCOLATE-COVERED PRETZEL FANS

December 20, 2004

The Iowa Department of Revenue today released a policy letter settling the burning tax question: are chocolate-covered pretzels "prepared food" subject to sales tax, or "bakery items," exempt from sales tax?

Bakery items it is!

Quoth the policy letter:

   First, concerning the pretzels baked in the candy shop, 
   sales of these are pretty clearly exempted from tax 
   under subparagraph (c) above.  They are “bakery 
   items sold by the seller which baked them,” and I do 
   not think that the fact they are later dipped in 
   chocolate brings them within the purview of 
   paragraph (2), that is the pretzels and chocolate are 
   not “two or more food ingredients mixed or combined 
   by the seller for sale as a single item.”  Why not?  A 
   “cake” is a baked good the sale of which would surely 
   not be excluded from exemption if its baker/seller 
   frosted it.  Treating like items in a like fashion, it must 
   then be said that anything done to a baked good 
   which is the equivalent of frosting it should not 
   remove the sale of the good from exemption.  And is
   not dipping a pretzel in chocolate the equivalent of 
   frosting it?  Sales of chocolate covered donuts would 
   obviously be exempt from tax; so must sales of 
   chocolate covered pretzels.

Thusly pretzels achieve tax parity with chocolate-covered donuts, and so triumphs justice.

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