More sales tax holiday madness – Wacky Tax Wednesday

I blinked a couple of weeks ago and missed a last-minute Massachusetts sales tax holiday. Did any retailers do the same?

The Massachusetts Legislature was considering a sales tax holiday, I knew; I’d been monitoring the discussion for months. In late July, Massachusetts enacted an annual August sales tax holiday starting August 2019.

One might assume the July 2018 enactment of an annual August sales tax holiday starting 2019 precludes an August 2018 sales tax holiday. If there were to be an August 2018 sales tax holiday, the annual tax-free period would have had an August 2018 effective date. Wouldn’t it? Furthermore, the state didn’t provide tax-free periods in 2016 or 2017 due to budgetary concerns, so it seemed to be on a no-holiday roll.

And so, I left for my own holiday thinking a 2018 Massachusetts sales tax holiday was unlikely. I should have known better.

In the state and local tax world, Massachusetts is notorious for its last-minute tax-free periods. If it offers one, the decision to do so is usually made mere weeks before the event occurs. In 2012, for example, the August 11–12 sales tax holiday was approved on July 31. In 2015, the August 15–16 holiday was established August 6. Guidance for the August 16–17, 2014, sales tax holiday was posted on the Massachusetts Department of Revenue website on August 13.

This year, The Bay State outdid itself. On August 10, Governor Charlie Baker tweeted his signing of the sales tax holiday bill. Shortly thereafter, the Massachusetts Department of Revenue tweeted FAQs for the holiday, though it seems the department didn’t post the FAQs on its website until August 11. The sales tax holiday started August 11.  

Innocent bystanders may find this amusing. For retailers tasked with complying with the sales tax holiday, it is less so.

In its defense, the Massachusetts tax-free period has relatively simple rules. The sales tax exemption applies to most items that are purchased for personal use and have a sales price of $2,500 or less. Many states have much lower price thresholds: $100, $50, or even $30 for some items. Additionally, the temporary sales tax exemptions generally apply to a wide variety of specific products, such as clothing, school supplies, and emergency-preparedness supplies, each of which generally has different exemption price thresholds.

The list of items that don’t qualify for the temporary sales tax exemption in Massachusetts is brief: electricity, gas, marijuana products, meals, motorboats, motor vehicles, steam, telecommunications services, tobacco products, and any single item with a sales price greater than $2,500.

Nonetheless, some complexity remains.

While a table costing $2,250 would be exempt, a table costing $2,575 would be taxable because it’s over the $2,500 price threshold. Yet a single item of clothing costing $2,575 would not be entirely taxable because Massachusetts provides a year-round exemption for any article of clothing with a sales price of $175 or less. Thus, on a dress costing $2575, the customer would pay tax on $2,400 ($2,575 minus $175) during the tax-free period.

Additional quirks are detailed in the Massachusetts Department of Revenue’s Emergency Sales Tax Holiday Regulation (published August 10).

All businesses registered in the state and making taxable sales of tangible personal property on August 11 and 12 were required to participate in the sales tax holiday. If a business erroneously collected sales tax during that time, the tax must be remitted to the department. However, the customer is entitled to a refund of the tax paid. That’s one reason knowing about the tax-free period in advance is worthwhile.

More sales tax holidays to come in 2018

Be warned that there are two more sales tax holidays planned in 2018: A Mississippi Second Amendment sales tax holiday August 31–September 2; and a Louisiana Second Amendment sales tax holiday September 7–9. Louisiana’s has some quirkiness of its own. Learn more about it here.

And remember, don’t close your eyes on sales tax, not even for an instant.