Written for owners of independent stores and small chains in the US: convenience and grocery, liquor and smoke shops, fashion, gifts, hardware, and garden and farm stores.
The short version
- Give every POS item its correct tax category.Candy, soda and hot food often stay taxable where groceries are exempt. The register charges whatever category you set.
- Use resale certificates only for goods you resell.You owe use tax on shelving and supplies bought untaxed for the store, and on anything you pull from inventory for store use.
- Size any past error, then call a CPA.Work out the sales and period affected from your daily sales summaries. Ask the CPA about the state's voluntary disclosure before an audit letter comes.
"Groceries are exempt" is true in California, Texas, New York and Florida, and it still costs convenience stores money, because the exemption has exceptions and the POS charges whatever category you set. When a taxable item is rung as exempt, the tax you did not collect is owed from your own pocket, with interest.
Candy, soft drinks and hot food
Food for home consumption is exempt in all four states. Candy and soft drinks are taxable in Texas, New York and Florida, and hot prepared food is taxable in all four. California exempts most cold food and candy but taxes carbonated drinks, hot prepared food and, under its 80/80 rule, cold food sold where more than 80% of sales are food and more than 80% of those are taxable. As of Oct 2026.
Tex. Tax Code 151.314; N.Y. Tax Law 1115(a)(1); Cal. Rev. and Tax. Code 6359
| Exempt grocery items | $14 |
| Candy and soda (taxable) | $6 |
| Phone charger (taxable) | $10 |
| Sale before tax | $30 |
| Sales tax | $1.32 |
8.25% x $16.00 of taxable items = $1.32, so the customer pays $31.32
Clothing
New York exempts clothing and footwear under $110 an item from the state 4%, with local rates depending on the county; New York City exempts it too. Texas runs an August sales tax holiday for clothing, footwear and school supplies under $100: check each year's dates and caps. As of Oct 2026.
| Dress, taxable at 8.875% | $120 |
| Shoes, under $110 so exempt | $95 |
| Sale before tax | $215 |
| Sales tax due | $10.65 |
$120 x 8.875% = $10.65; none on the shoes
Resale certificates and use tax
Buy inventory tax-free with your state's resale certificate: California CDTFA-230, Texas Form 01-339, New York ST-120 or the Florida Annual Resale Certificate. You owe use tax on taxable items you buy untaxed for the store's own use, and on anything you pull from inventory for store use.
Shelving is for the store's own use. In that example, use tax at 6% plus the county surtax is due: $980 at a 1% surtax, since the surtax applies only to the first $5,000 of each item and each unit was under $5,000.
If the POS has been wrong
For example, a Dallas convenience store rang $96,000 of candy and soda as exempt groceries for a year. At an 8.25% combined rate on tax-exclusive pricing, about $7,920 of tax was not collected, and it is now owed from the store's own pocket, with interest.
- Recode the POS.Map every item to its tax category: exempt grocery, candy, soft drink, prepared food or general. Use the state tax agency's category guide.
- Size the problem.Work out the sales affected and the period, from your daily sales summaries by tax category.
- Talk to a CPA before the state finds it.Ask about the state's voluntary disclosure before an audit letter arrives.
Use the state's rate lookup for the store's address, not the ZIP code alone. The store collects for the state and locality where the sale happens, and in store that is your address.
Asked in Greymill
Why: in Texas, food for home consumption is exempt, but candy and soft drinks are taxable, and so is hot prepared food (As of Oct 2026).
Your register charges whatever category you set.
The math: $96,000 x your 8.25% rate = $7,920 that should have been added at the register.
Do this now:
1. Recode the POS. Give every item its tax category: exempt grocery, candy, soft drink, prepared food or general. Use the state tax agency's category guide.
2. Size the problem: the sales and the period affected, from your daily sales summaries by tax category.
3. Call a CPA before the state finds it. Ask about the state's voluntary disclosure before an audit letter arrives.
Send me your department list and I will flag every category set up wrong.
Ask it about your own business
Paste this into Greymill with your own figures, and Tax & Bookkeeping works it through for your business.
I run a shop in [state], in the US. Here is my POS department list with the tax category each one is set to: [paste]. Check each against my state's rules for groceries, candy, soft drinks, prepared food and clothing, flag anything set up wrong, and estimate the tax I may have under-collected over the last [months] on sales of about [$] in those departments.
More for shops and physical retail in the US
- Am I really making the margin I think, after markdowns?Margin versus markup, pricing from a target margin, what a markdown really costs, and working out open-to-buy before you order.Read the lesson
- Paying for holiday inventory before the holidays pay youWhy a store's cash runs short in the fourth quarter, how a 13-week forecast shows it early, and what to borrow if you must.Read the lesson
- Selling alcohol, tobacco, vapes and hemp without losing a licenseAge 21 for alcohol and tobacco, pseudoephedrine limits, which vapes you can legally sell, why hemp is a moving target, SNAP, and what to do after a failed sting.Read the lesson
- Signing a store lease without overpaying on CAM and percentage rentNNN, CAM caps and audits, percentage rent breakpoints, co-tenancy and guaranties: the clauses that decide what a store really pays, and what to do when a notice arrives.Read the lesson
- Schedules, teenage stockers and staff who chase shopliftersRetail scheduling laws, the federal limits on 14 and 15-year-olds, commission pay, and why staff must never try to stop a thief.Read the lesson
- A customer says my card fee or gift card is illegalCard surcharges, dual pricing, gift card expiration dates and refund signs: where stores get caught, state by state.Read the lesson
Open the interactive lesson · Every shops and physical retail lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- South Dakota v. Wayfair, 585 U.S. 162 (2018) (Sales and use tax)
- rates page (Sales and use tax)
- Tax Code 151.051; 321.101 (Sales and use tax)
- Publication 718 (Sales and use tax)
- Fla. Stat. 212.05, 212.055 (Sales and use tax)
- Fla. Stat. 212.054(2)(b) (Sales and use tax)
- VDA program (Tax hard cases)
- form (Tax hard cases)