Devilish Sales Tax Holidays -- Wacky Tax Wednesday

Twelve states are offering a sales tax holiday the weekend of August 5 – 7, 2016: Alabama, Arkansas, Florida, Iowa, Louisiana, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Texas, and Virginia. Is your business prepared?

Most of these tax-free periods center on back-to-school items such as clothing, footwear and school supplies. Many items that are exempt in Missouri will also be exempt in South Carolina and elsewhere. Yet each state puts its own special twist on its tax-free period, and the devil is in the details.

Devilish details

Alabama. The exemption from the state portion of sales tax is compulsory but localities are not required to exempt the local portion of the tax. More devilish still, localities may choose to exempt a portion of the local tax, but not all of it. For the most up-to-date list of participating and non-participating localities, see the Alabama Department of Revenue.

Arkansas. Accessories (e.g., cosmetics, hair notions, and jewelry) priced at less than $50 per item do qualify for the exemption, which is unusual. For lengthy lists of qualifying products, see the Arkansas Department of Taxation and Finance.

Florida. Bags, clothing, wallets, and other qualifying items are not exempt when the sale occurs at a theme park, entertainment complex, public lodging establishment, or airport. Sorry parents: tax applies to all that Disney World swag.

Iowa. Most sales tax holidays that are held the first weekend of August include Sunday, a day when many people have the time to shop. Not so in Iowa, where the holiday runs Friday and Saturday only.

Louisiana. To help ease the cost of compliance, Louisiana provides participating retailers with a cash register reprogramming credit of up to $25 for each cash register programmed in preparation for a sales tax holiday. Louisiana has also trimmed its sales tax holidays, providing a reduction in tax rather than a full exemption through June 30, 2018.

Missouri. Cities, counties, and special districts may elect to not participate in the holiday, and retailers are required to collect the local portion of tax in areas that opt-out. In addition, retailers don’t have to participate if less than 2% of their merchandise qualifies for the sales tax holiday rate.

New Mexico. The New Mexico holiday is actually a gross receipts tax holiday, and retailers of qualifying tangible personal property are not required to participate in it or to take the deduction offered. For additional information, see the New Mexico Taxation and Revenue Department.

Ohio. The 2016 Ohio sales tax holiday is a one-time event, not an annual event.

Oklahoma. When a raincheck is issued during the sales tax holiday but redeemed after it, the purchase is taxable. However, the exemption applies to items purchased during the tax-free period using a previously issued raincheck.

South Carolina. Unlike in most states, there are no price restrictions during the South Carolina sales tax holiday. And in addition to qualifying clothing and footwear, South Carolina exempts bath washcloths and towels, bed linens, and bed spreads. Layaway sales or similar deferred payment and delivery plans do not qualify for the exemption.

Texas. Retailers are not permitted to advertise or promise that they’ll pay the tax owed on non-qualifying items; however, they may advertise that tax is included in the sale price of taxable items. In addition, anyone buying more than 10 qualifying backpacks must provide an exemption certificate certifying that they’re being purchased for use by elementary or secondary school students.

Virginia. Virginia rolled its three separate sales tax holidays into one in 2015, so in addition to clothing and footwear, there’s no tax on energy efficient appliances and emergency preparedness supplies. Retailers are permitted to absorb sales tax on non-qualifying items during the tax-free period and during the two weeks prior to it.

Fear not. Sales tax software like Avalara AvaTax facilitates compliance during sales tax holidays.Learn more.