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Oh Christmas tree, oh Christmas tree, how much tax do I owe for thee?

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It is generally believed that the modern Christmas tree tradition originated in Germany in the 16th century. (William D. Crump, The Christmas Encyclopedia (2001))Thus, it makes sense that Christmas trees first started appearing in the United States in the 1830s when German settlers in Pennsylvania put them on display. (Id.) As we enter the holiday season, Christmas tree sales start popping up all over the place. The type of tree to buy can be fiercely debated (fir tree, pine tree, or spruce tree), as well as the size of the tree (small, medium, or up to the ceiling), and of course, the price. What normally does not factor into the decision is the question of value added tax (VAT). VAT is an indirect consumption tax that is imposed at different stages of production on goods and services on the value added. It is common in most industrialized countries, including Germany and other European Union countries. In the United States, there is no VAT on goods or services, but most U.S. states charge a sales tax instead. Sales tax is only charged when the sale takes place and is levied on the total value of the goods or services.

The German legislature has a lot of thoughts about VAT for Christmas trees. In general, you would expect to pay a reduced rate of 7% VAT applicable to plant parts for a Christmas tree in Germany. But that is not always the case. In fact, if you buy a Christmas tree in Germany, there are four different rates of VAT that could apply to your purchase (exceptions exist for “used trees”—whatever that might be). My research showed that the legislature generally wanted to help farmers by introducing a flat-rate scheme to offset the VAT charged on purchases of goods and services, but I did not find anything specific about why Christmas trees fall into several different categories. I can only speculate that it is the love for Christmas trees, nurtured from early childhood on, that led to such detailed rules.

Decorated Norwegian Tree at Union Station. Photo by Jenny Gesley.

Let us assume you buy your tree at a retail store. Are you one of the people who only buy real Christmas trees, because they smell so good? Or, instead, are you a strong supporter of artificial Christmas trees because they are typically more convenient and cheaper? Well, at least with regard to VAT, you fare better with a real tree. For a real tree bought at a retailer, you will be charged 7% VAT versus 19% (general VAT rate) for the artificial tree.

Would you rather support a local farmer and buy your tree at a Christmas tree farm? Well, that makes the whole thing a little more complicated. If the farmer grows Christmas trees on his farm in a special cultivation, they are taxed with 10.7% VAT. If, on the other hand, the farmer cut the tree in the woods and then sells it to you, the tree is taxed with only 5.5% VAT.

And if you think that taxes and Christmas are out of keeping, remember that, according to Christian text, Joseph and Mary traveled to Bethlehem to be registered for Roman taxation.

Frohe Weihnachten/Merry Christmas, to those of you who celebrate!

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