Is your small business ready to ace back-to-school sales tax holidays?
As we head into back-to-school time, many states give parents a bit of a boost by offering tax holidays that exempt items such as school supplies, clothing and footwear from sales tax for a specific period of time.
Sales tax holidays can be a double-edged sword for small businesses. On the one hand, customers are incentivized to buy when they don’t have to pay sales tax. On the other hand, as a seller, you have to keep track of which states have sales tax holidays, which items are exempt during this time and how long the sales tax holiday lasts. Making sure you’ve got all the information you need can represent an investment of time and energy that can be burdensome to small businesses with limited resources.
However, small businesses have to be even more careful about compliance because they often can’t afford to deal with audits, fines or penalties. So it’s crucial for small businesses to avoid getting tripped up when it comes to sales tax holidays.
Know your nexus
In order to make sure you are figuring out sales tax holidays correctly, you need to know where you have nexus. Nexus means you have a relationship with a state that obligates you to collect sales tax. If you don’t have nexus in a state, you don’t need to collect sales tax from transactions in that state. Nexus definitions change constantly, though, so it’s important to make sure you are defining nexus according to the latest rules.
State sales tax holidays coming up
Twelve states are offering a sales tax holiday the weekend of August 5 – 7 of this year: Alabama, Arkansas, Florida, Iowa, Louisiana, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Texas and Virginia
Meanwhile, in Connecticut, clothing and footwear costing less than $100 are exempt August 21 – 27 of this year, and in Maryland, qualifying apparel and footwear costing $100 or less per item is exempt Aug. 14-20.
While clothing and school supplies are commonly exempt during August sales tax holidays, each state is unique in not only what it considers exempt, but often in how it defines those categories.
For example, Arkansas is unique in exempting accessories such as cosmetics and jewelry that cost less than $50 during its August tax holiday.
And in Florida, the exemption does not apply to bags, clothing, wallets and other qualifying items when the sale occurs at a theme park, entertainment complex, public lodging establishment or airport.
Meanwhile, in South Carolina, the state exempts washcloths and towels and bed linens along with qualifying clothing and footwear.
These are just a few examples of how states can differ in what’s covered under tax holidays. For more details on individual states, here’s a comprehensive list of upcoming state sales tax holidays. But it’s crucial to make sure you are in touch with the relevant state tax authorities to be sure you’re totally updated on the latest information.
How to get help
Sales tax automation software, such as Avalara Returns for Small Business, can help make sure that you don’t flunk back-to-school sales tax holidays. Avalara Returns for Small Business simplifies the returns process, from preparation and filing to remittance. Small business owners can reduce sales tax return prep time and eliminates the hassle of filing with each state website — all through a self-serve and easy-to-use application.
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