Massachusetts, Sales Tax, Caps and Thresholds
- Sales and Use Tax
- February 10, 2012 | Mark Wilhelm
Mark Wilhelm - The Recovering Accountant
Clothing and apparel…who would expect to find exotic product taxability for sales tax surrounding the purchase of a simple pair of pants, socks, shoes, etc? As I indicated in my previous blog entry “What Do Roller Coasters Have To Do With Sales Tax,” the only caps and thresholds on apparel that I know of are in the Eastern, specifically, Northeastern states.
I have my own suspicion of why this is—I figure it is probably due to the fact that during the industrial revolution the main textile industries began back there and eventually, once sales tax came about, some lobbyist parlayed getting benefit of sales tax-free purchasing. In Ohio, where I grew up, there are no such taxability rules around clothing and apparel in particular—clothing is just taxable.
I’ve already discussed the brand of complexity New York instituted for clothing and apparel sales, so now let’s take a look at Massachusetts. In Massachusetts, they have a single item threshold of $175.00 before the article of clothing becomes taxable for the state sales tax. By the way, our friends in the Bay State only have a state sales tax rate—there are no local sales taxes, so you’d expect sales tax to be easy in Massachusetts, right? Well, let’s see….
I can purchase a single article of clothing that costs up to $175.00 and the purchase is sales tax-free. Once I get above $175.00, only the amount in excess of that $175.00 is taxable. So, if I purchase a pair of shoes at $200.00, the first $175.00 is tax-exempt and the remaining $25.00 has sales tax charged. However, if I purchase two pairs of shoes at $100.00 each, that purchase would fall under the $175.00 single item threshold and remain tax-free.
If I own a retail apparel business that has stores located in Boston and New York City, just how much time and effort do I have to put into managing taxability rules? Moreover, how do these rules impact my pricing strategy?
For example, in Massachusetts, if I price a pair of shoes at $174.99 versus $199.99, does this increase my potential for getting a sale? If I also have an ecommerce website, how do I try to balance the $110.00 threshold in New York City versus the $175.00 threshold in Massachusetts? I am glad I am not a retailer striving to find the balance on that price and sales tax juggling act, but if I were, I would surely be looking for a sales tax automation solution to take sales tax compliance headaches away. With my compliance concerns addressed, I can focus on building my business, being competitive and generating revenue.
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Next week, we’ll visit Tennessee!