ABSTRACT
This paper arose from the effort of the Pennsylvania Department of Revenue to audit a retailer’s collection of sales taxes. In Pennsylvania, food, clothing and medicine are not subject to sales tax. Thus, for example, Scope, a mouthwash with no medication is taxed, but Listerine, a mouthwash with medication, is not taxed. It is even the case that the identity of the item purchased may not be sufficient to establish whether the purchase is subject to sales tax. Thus wool sold to someone to knit socks or a sweater is not taxed, but the same wool sold to someone to make a wall-hanging is taxed.
