Hagan and the candy and soda tax

A "sin tax" on booze and cigarettes did not make it into the 2003 budget.

But another tax hike — a venial sin tax? — on soda was included in the final budget at the behest of Senate budget writers, including Sen. Kay Hagan. A higher tax on candy made it into the 2005 budget.

The increase was part of a multi-state effort started in the late 1990s to make the sales tax more uniform in the hopes of getting online and catalog retailers to charge it.

At the time, North Carolina treated candy and soda differently based on where they were sold.

If you bought a bag of M&Ms at the 7-Eleven to eat immediately, you paid state and local sales tax since it was basically considered junk food. If you bought a larger bag to, say, pack in your kid's lunchbox, you only paid a local sales tax, since it was considered a grocery item.

To streamline the tax, legislators had to choose whether to charge the state sales tax on all candy and soda, or leave it all at the local rate.

"You had to treat it all the same," explained state sales tax director Andy Sabol.

More after the jump.

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In 2003, Senate budget writers pushed for soda and candy to be taxed at the higher rate, but House budget chairs disagreed.

In a compromise, the final budget (Section 45.6) included a higher tax rate on soda. At the request of the soft drink industry, it also included a separate provision (Section 2.2) that dropped the tax rate by half on cans and bottles sold through vending machines. It left the tax on candy the same.

The streamlined sales tax, which included soda, prepared food and modified software, was estimated to bring in an extra $44.1 million in revenue, while the vending machine loophole was projected to cost the state $4.1 million.

Then, in the 2005 budget (Section 33.10), the House and the Senate agreed to raise the sales tax on candy to the higher level.

That brought in an additional $9.8 million in revenue.