Why Sales Tax Holidays Are Hard for Retailers: The Reusable Sandwich Bag
- Jul 25, 2014 | Gail Cole
Sales tax holidays tend to be popular because they allow people to purchase taxable items tax-free. Savvy shoppers who plan accordingly enjoy substantial savings by purchasing eligible big ticket items during holidays. But because tax adds up even on small-ticket items (as any back-to-school shopping parent knows), sales tax holidays help families save.
Retailers are alleged to like sales tax holidays because they bring customers into their shops. Since sales tax is an indirect tax--it is collected by businesses for state and local governments—the fact that it isn’t charged shouldn’t hurt a retailer’s bottom line. But that doesn’t mean sales tax holidays are easy for retailers.
The Case of the Reusable Sandwich Bag
Virginia created an annual sales tax holiday for clothing and school supplies in 2006; this year it takes place August 1-3.
To help buyers and sellers alike, the Virginia Department of Taxation provides an all-inclusive list of school supplies exempt during the tax-free period. “Lunch boxes” are included on the list. But exactly what is a lunch box? I stuff my kids’ lunches into reusable insulated bags every day; are they considered lunch boxes in Virginia?
Since I don’t live in Virginia, it doesn’t matter. But a similar question was posed to the Virginia Tax Commissioner by a company that designs and sells reusable “fabric sandwich and snack bags and wraps.” Does a reusable sandwich bag qualify as a lunch box? If it does, it is exempt during the August sales tax holiday. If it doesn’t, it isn’t.
According to the Tax Commissioner, it doesn’t. The ruling reads:
“Although they may serve a similar purpose, reusable fabric sandwich bags and wraps are not lunch boxes as the term is commonly understood.”
So be it.
Retailers are not permitted to charge sales tax on exempt items during sales tax holidays. That means retailers need to know exactly what is exempt and what is taxable during a sales tax holiday. They also need to program their point of sale systems and train their staff accordingly. That takes time and costs money.
Many tax experts argue that sales tax holidays do not make sense, that they’re politically popular but fiscally unsound. Retailers struggling to determine the taxability of a reusable sandwich bag might agree.
An automated sales tax solution helps retailers handle sales tax holidays efficiently and effectively. Learn more.
Check out a cool map of state sales tax holidays.