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Principles of Tax Several states have declared sales tax holidays, in which the state does not...

Principles of Tax Several states have declared sales tax holidays, in which the state does not collect sales tax on certain items for a short period of time. In most instances, the holiday has been for clothing and the period has been a week or ten days in August, the idea being to give a “back-to-school” discount, as families get ready for the new academic year. Analyze the idea of such holidays according to yield, equity, administration and compliance, and economic impact.

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More than a dozen states offer sales tax holidays every year — limited periods of time during which specific products are exempt from state, and in some cases local, sales tax. These typically range in duration from one weekend to one week.

While consumers often enthusiastically embrace tax-free periods, retailers may feel more ambivalent about them. Sales tax holidays tend to bring more bodies through the door (or clicks to the website), and can boost overall sales while they last. Yet they also complicate sales and use tax compliance, especially for businesses that sell affected items in multiple states. For example, states may have different price restrictions on the same items, and different policies on delivery charges, layaway sales, rain checks, etc. On top of all that, point-of-sale systems must be altered to account for the tax change, and then returned to normal.

Some state laws provide for annual tax-free periods. In other states, sales tax holidays are one-time events, though they may be adopted year after year. Annually recurring sales tax holidays are less likely to change than one-off holidays, though all tax-free periods are subject to change at any time.

While a few states offer a general sales tax holiday, during which most types of products are tax exempt, it’s more common for states to exempt specific products at specific times. Back-to-school sales tax holidays are generally held during the summer, prior to the start of the school year. Second Amendment sales tax holidays are typically held during or prior to the fall hunting season. Disaster preparedness holidays are offered before the start of storm seasons, and so forth.

Below is a list of 2018 sales tax holidays. The most up-to-date links to state information are provided. However, many state tax authorities don’t release information about the year’s tax-free periods until closer to the date of the holiday. Check back to this blog for updated information as the year progresses.

2018 sales tax holidays

Alabama

Severe weather preparedness, February 23­­–25, 2018

                    o Portable generators priced $1,000 or less

                    o  Variety of supplies priced $60 or less

Back to school, July 20­­–22, 2018

                  o  Clothing priced $100 or less

                    o  Computers, computer software, and school computer supplies priced $750 or less

                    o  School supplies priced $50 or less

                    o  Books priced $30 or less

The Alabama sales tax holiday applies to state sales tax. Counties and municipalities may participate, but they aren’t required to.

Arkansas

Back to school, August 4–5, 2018

o Clothing priced less than $100

                    o  Clothing accessories and equipment priced less than $50

                    o  School supplies (no price restriction)

Applies to state and local sales tax

Connecticut

Clothing and footwear, August 19–25, 2018

                    o Qualifying items priced less than $100

                    o Applies to state sales tax only (Connecticut has no local tax)

Florida

Disaster preparedness, June 1–7, 2018

o  Batteries (AAA-cell through D-cell, 6-volt, and 9-volt) priced $30 or less

o  Gas or diesel fuel tank priced $25 or less

o  Ground anchor system or tie-down kit priced $50 or less

o  Food cooler, non-electric priced $30 or less

o  Portable generator priced $750 or less

o  Portable self-powered light source priced $20 or less

o  Portable self-powered radio, two-way radio, or weather-band radio priced $50 or less

o  Reusable ice priced $30 or less

o  Tarpaulin or other flexible waterproof sheeting priced $50 or less

o  Applies to state and local sales tax

Clothing and school supplies, August 3–5, 2018

                o Qualifying clothing and footwear priced $60 or less

                    o  Qualifying school supplies priced $15 or less

o  Applies to state and local sales tax

Iowa

Clothing and footwear, August 3–4, 2018

                    o Qualifying items priced under $100

                    o  Applies to state and local sales tax

Louisiana

Hurricane preparedness, May 26–27, 2018

                    o The first $1,500 of the price of qualifying items

                    o  Eligible purchases are subject to a reduced state sales tax rate of 3 percent

                    o  Local taxes apply

Annual sales tax holiday, August 3–4, 2018

                    o The first $2,500 of the price of qualifying items

                    o Eligible purchases are exempt from state sales tax

                    o Local taxes apply

Second Amendment, September 7–9, 2018

                    o Ammunition, firearms, and hunting supplies

                    o  Qualifying items are exempt from state and local sales tax

A reduced rate of sales tax (3 percent) rather than a full exemption has applied to sales tax holidays in Louisiana since 2016. The full exemption is expected to resume starting July 1, 2018. Additional information.

Maryland

Energy efficiency sales tax holiday, February 17­­–19, 2018

                    o  Energy Star products (no price restriction)

Shop Maryland Tax-Free Week, August 12­­–18, 2018

                    o  Apparel and footwear priced at $100 or less

                    o  For backpacks or bookbags, the first $40 is tax free

Mississippi

Annual sales tax holiday, July 27–28, 2018

                    o  Clothing and footwear priced less than $100

Second Amendment, August 24–26, 2018

                    o  Ammunition, firearms, and hunting supplies (no price restriction)

Both holidays apply to state and local sales tax

Missouri

Show-Me Green sales tax holiday, April 19–25, 2018

                    o  Energy Star products priced $1,500 or less

Back to school, August 3­–5, 2018

                    o  Clothing priced $100 or less

                    o  Computers priced $1,500 or less

                    o  School supplies priced $50 or less

Both tax holidays apply to state sales tax

Local jurisdictions can choose to participate or not

New Mexico

Back to school, August 3­–5, 2018

                    o  Bookbags, backpacks, maps, and globes priced under $100

                    o Clothing, footwear, and accessories priced less than $100

                    o  Computers priced up to $1,000 (includes e-readers with computing functions and tablets)

                    o Computer-related items priced up to $500

                    o  Handheld calculators priced under $200

                    o  School supplies priced under $30

Retailers are not required to participate in the back-to-school tax holiday

Retailers are permitted to absorb the tax on non-qualifying items

Small business sales tax holiday, Saturday, November 24, 2018

                     o Retailers that maintain their primary place of business in New Mexico and employ no more than 10 employees at any one time do not have to charge customers gross receipts tax on qualifying items with a sales price of less than $500.     

Ohio

Sales tax holiday, August 3­–5, 2018

                    o Clothing priced $75 or less

                    o School instructional materials priced $20 or less

                    o  School supplies priced $20 or less

Applies to state and local sales tax

Participation is mandatory

This is a one-time holiday

Oklahoma

Annual holiday, August 3­–5, 2018

                    o  Clothing and footwear priced less than $100

Applies to state and local sales tax

Puerto Rico

Back to school, January 4–5, 2018

                    o  School uniforms and footwear

                    o  School materials

There is typically another back-to-school sales tax holiday in July, but dates have not yet been released

South Carolina

Annual sales tax holiday, August 3­–5, 2018

                    o Clothing and footwear

                    o Computers, printers and printer supplies, and software

                    o  School supplies

                    o  Select bed and bath items

There are no price restrictions on eligible goods

Applies to state and local tax

Tennessee

Annual sales tax holiday, July 27–29, 2018

                    o  Clothing priced $100 or less

                    o  Computers priced $1,500 or less (excludes software)

                    o  School and art supplies priced $100 or less

Applies to state and local sales tax

Texas

Emergency preparedness supplies, April 28–30, 2018

                    o  Portable generators priced less than $3,000

                    o  Hurricane shutters and emergency ladders priced less than $300

                    o  Specified emergency preparedness supplies priced less than $75

Energy Star sales tax holiday, May 26–28, 2018

                    o  Energy Star air conditioners priced at $6,000 or less

                    o  Energy Star refrigerators priced at $2,000 or less

                    o  Specified Energy Star products, no price restriction

Water-efficient products sales tax holiday, May 26–28, 2018

                    o  Any WaterSense labeled product may be purchased tax-free during the sales tax holiday

                    o Applies to purchases for business and personal use

                    o  No price restrictions

                    o  Certain water-conserving products may also be purchased tax-free, but must only be for residential use

Annual sales tax holiday, August 10–12, 2018

                    o  Clothing and footwear priced less than $100

                    o  Specified school supplies and school backpacks priced less than $100 per item

All of the above apply to state and local sales tax

Virginia

Annual sales tax holiday (three-in-one sales tax holiday), August 3–5, 2018

                    o  Clothing and footwear priced $100 or less

                    o  Energy Star and WaterSense products priced at $2,500 or less

                    o  Portable generators priced $1,000 or less

                    o  Gas-powered chain saws priced $350 or less

                    o  Chain saw accessories priced $60 or less

                    o  Specified hurricane and emergency preparedness supplies priced $60 or less

                    o  School supplies priced $20 or less

Applies to state and local sales tax

Wisconsin

August sales tax holiday, August 1–5, 201

                    o Clothing with a sales price of no more than $75 per item

                    o Computers, laptops, or tablets (purchased for personal use) with a sales price of no more than $750 per item

                    o School computer supplies with a sales price of no more than $250

                    o School supplies with a sales price of no more than $75 per item

Applies to state and local sales tax

States that may offer a sales tax holiday in 2018

Massachusetts

The state often provides a sales tax holiday weekend in August but usually waits until the last minute to announce it.

The Massachusetts Sales Tax Decrease and Tax-Free Weekend Initiative, which seeks to create a permanent annual sales tax holiday, may appear on the November 2018 ballot.

Sales tax holidays complicate sales tax compliance for retailers in numerous ways. Some examples of the confusion retailers may face include: an item may qualify for the exemption until delivery charges cause it to exceed the price limitation; many sales tax holidays are held during weekends, but while some last Friday through Sunday, some are held Saturday and Sunday, some Friday and Saturday, and some Saturday through Monday; sales tax holidays often only apply to purchases for personal use, not business purchases — but there are exceptions to that rule.

These differing rules and regulations make sales tax compliance particularly challenging for ecommerce businesses that sell to customers nationwide. Getting sales tax wrong during a sales tax holiday, when customers and the state are focused on tax more than usual, could trigger a PR nightmare and potentially an audit.

IMPACT

This year, 16 states will hold a sales tax holiday . If that number sounds low, it is. While 45 states have a state-wide sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon do not), more states are opting out of offering shoppers a tax break each year. This year, for example, Georgia dropped its annual sales tax holiday, the third state to do so since 2010.

That feels like it's a bad thing. But perhaps it's not. According to the independent tax policy nonprofit, Tax Foundation, "[s]ales tax holidays do not promote economic growth or significantly increase consumer purchases." In fact, says the organization, evidence from a new 2017 study by Federal Reserve researchers shows that shoppers don't buy more: they simply shift the timing of purchases. And, some actually retailers raise prices during the sales tax holiday, reducing consumer savings - a potential egregious maneuver since retailers don't pay sales tax out of pocket. You and I pay sales tax as consumers.

Calling sales tax holidays "political gimmicks," the Tax Foundation argues that the sales tax holidays "create complexities for tax code compliance, efficient labor allocation, and inventory management."

So why bite?

For one, sales tax holidays are free advertising for retailers. While the "sale" typically involves a 4 to 7 percent discount - the kind of "sale" most folks wouldn't line up on Black Friday for - it attracts notice. That, claims the Tax Foundation, leads many larger businesses to lobby for sales tax holidays.

Not all retailers, however, are convinced that it's a good thing. One retailer in a 2015 survey of Massachusetts Retailers Association members (downloads as a pdf) reported that the sales tax holiday does more harm than good. "Business is nonexistent three weeks before and two weeks after," the business said. "As a result, five weeks of business are crammed into two days, and the total amount of sales does not come close to five normal weeks of summer business."

The holiday is also considered favorable for politicians. If you've ever read the fine print on sales tax holidays, you're likely baffled by the numerous exclusions and exemptions. That, according to the Tax Foundation, is being politicians choose "products and industries to favor with exemptions, arbitrarily discriminating among products and across time, and distorting consumer decisions." Those products and industries tend to be those which offer benefits of some kind to politicians, either in the way of political support and/or contributions, or good press. As a result, the cherry-picking of items included in the sales tax holidays from state to state can be so intrusive that they've been called "a Soviet-style state-directed price reduction on items selected by the state."


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