Figuring out when your business needs to collect sales tax is challenging enough; throw in the 18 states that are holding sales tax holidays this year, and you have a whole new set of regulations to deal with. While sales tax holidays have been around for a while, (Ohio and Michigan started the trend in 1980), remote or online sellers didn’t have to give a second thought to these ocassions. That is until South Dakota v. Wayfair in 2018 changed the sales tax landscape forever.
Making Sense of Sales Tax Holidays
A sales tax holiday, at its core, is a specific time period set by a state during which some taxable purchases are exempt. The type of items that are exempt vary by state and often coincide with significant events, (such as back-to-school or hurricane season). Understanding each state’s sales tax holiday will take a bit of research, but here is what to look for:
Time Frame
Some sales tax holidays are long, some are short. Some are annual occurances, others are not. Some are held to specific start and end times, others have variables. This all sounds very vague and kind of like a Dr. Seuss book, but sales tax holiday time frames vary about as much as the creatures in Red Fish, Blue Fish.
Price Limits
Most sales tax holiday exemptions are only eligible to a certain point. A lot of these prices apply to the individual item rather than the whole of the sale. For example, Arkansas’ yearly back-to-school sales tax holiday during the first weekend of August applies to clothing and footwear priced at less than $100 per item.
Product Specifications
Sales tax holidays are not, as you would guess, for everything. There are very specific rules as to what is temporarily exempt and what isn’t, and oftentimes the qualifying products are related to a specific events or time periods. For example, Florida and Texas have yearly sales tax holidays dedicated to disaster-preparedness, while many other states participate in August’s back-to-school scramble by making school supplies and clothing tax free.
Product Use
If there’s one policy each state can agree on, it’s that sales tax holiday purchases apply to eligible retail items when purchased for personal use only. In other words, businesses or individuals buying those products for business use will still be charged sales tax, (unless a handy-dandy exemption certificate applies).
Are Remote Sellers Held To Sales Tax Holiday Ordinances?
Typically, if a state is requiring every seller to make certain products temporarily exempt from sales tax, they mean everybody. Iowa, for example, states that eligible items purchased by mail order, catalog, or Internet are exempt if they are ordered and paid for during the exemption period, even if the delivery is made after the sales tax holiday. Massachussetts has a similar mandate, specifying that qualifying purchases made over the Internet are eligible if they are ordered and paid for during the sales tax holiday (Eastern Daylight Time).
However, if there’s any universal truth in the sales tax world, it’s that the laws are rarely so cut and dry. Take Alabama for instance; they allow jurisdictions to choose whether they will participate in a sales tax holiday. Remote retailers that sell to customers in a cooperating jurisdiction will need to make those eligible sales tax exempt, while sales to regions that choose to opt-out remain taxable.
The best way to truly understand your sales tax holiday responsibilities is by visiting state Department of Revenue websites.
How To Prepare For Sales Tax Holidays
Understanding what a sales tax holiday is and how it works is one thing; applying the rules to your business is another. Consider these tips and resources to ensure that sales tax holidays don’t sneak up on you.
| Calendar tracking | Many sales tax holidays happen annually. Keeping record of these and blocking them in a calendar will help you to remember when to adjust your sales tax collections. |
| Refer to your Marketplace Facilitator | Since most marketplace facilitators are required to collect and remit sales tax on behalf of their sellers, they will also need to apply sales tax holiday exemptions. If you use a facilitator, stay alert for news about these holidays and frequently check tax data on the platform. |
| Subscribe to receive state updates | Many State Department of Revenues provide free email updates that cover state or local tax changes and due dates, including sales tax holidays. |
| Refer to other online resources | A lot of tax websites have sales tax holiday charts that are released every year. A quick Google search will garner many results, but we recommend Federation of Tax Administrator’s chart. |
