Many states use sales tax holidays to waive or reduce sales tax on various items. These holidays can be annual or even two or more times a year. Online purchases usually receive the same tax treatment during these holidays as in-person purchases; remote sellers aren’t permitted to charge tax on qualifying goods during sales tax holidays, but how do you know where this is happening and when or when not to charge sales tax?
Sales tend to skyrocket during these tax holidays, so for many retail and e-commerce businesses, this is a great time to recover any losses from earlier in the year, but you need to ensure you understand your obligation to charge or not charge the correct sales tax in a state, especially if selling into a remote state.
A very varied picture
Location, location, location is the rule when it comes to sales tax holidays.
Many states’ holidays are fixed and annual (but not all!). The holidays may only cover state sales tax but not local sales taxes, as in South Carolina (which, like other states, has no price cap on eligible items). But holidays cover both state and local taxes in Oklahoma, Virginia, Texas, and other states.
You may or may not have to participate in a sales tax holiday in some states. Ohio’s holiday applies to state and local sales tax, and participation is mandatory. Massachusetts also mandates that all businesses, including e-commerce businesses, participate. New Mexico, however, allows retailers to opt-out of its gross receipts tax holiday.
States hold sales tax for different occasions or for different kinds of purchases. Many states grant a holiday for going back to school and exempt sales tax on such items as clothes, footwear, computers, calculators, school supplies, books, and backpacks. Other states like Maryland, Missouri, Texas, and Virginia have holidays for energy-efficient devices.
States in the path of hurricanes, such as Alabama, Florida, Texas, and others, offer holidays for disaster preparedness and exempt supplies for emergencies. Second Amendment holidays in Mississippi and Louisiana exempt firearms, ammunition, and hunting supplies from sales tax.
Some sales tax holidays last only a few days, others a week. Some holidays last a long time or may be for specific headline items. Another new Tennessee holiday, for instance, runs from July 1 through June of next year and eliminates sales tax on purchases of such items as gun safes and gun safety devices. Other unusual exempt items include certain chain saws in Virginia and bed linen in South Carolina.
Sales tax holidays also seem to have become popular tools to encourage a state’s residents to buy goods and return to a normal life. For example, Florida recently extended the state’s Back to School sales tax holiday and created a “Freedom Week” sales tax holiday for July 1 to July 7 this year. During the week, shoppers will not pay sales taxes on qualifying recreation and outdoor items, as well as on admissions to entertainment and such cultural events as concerts. (As with many jurisdictions’ sales tax holidays, there are exclusions. Always check.)
Massachusetts Gov. Charlie Baker has proposed a two-month sales tax holiday for this August and September, another effort to drive shoppers to local businesses.
And from July 30 to Aug. 5, Tennessee will again have a holiday for sales tax on food, food ingredients, and prepared food, the second year of an attempt to exempt restaurant fare, get people out, and boost the economy.
How to make sure
Preparing for a sales tax holiday in a state where you have significant sales takes work, but you don’t want to be caught short if the holiday creates a crush of sales.
Make sure your e-commerce site can handle a rush of customers and you can appropriately not charge sales tax on the appropriate items.
Sales tax holidays can be a benefit to both seller and consumer – but can be hard to track when you’re dealing with remote sales. Make sure to know the rules wherever your company is required to collect and remit sales tax. You can find the details of most states’ sales tax holidays on their individual Department of Revenue sites.
If you need help understanding your sales tax obligations and whether you should be collecting sales tax – get in touch. TaxConnex has experts to help answer these questions for you and to help you establish an ongoing process to ensure you remain compliant, even with the frequently changing rules of sales and use tax.