Sales Tax Holidays – Compliance Q&A
- Sales and Use Tax
- January 4, 2016 | Gail Cole
Sales and use tax compliance is complex and therefore sparks many questions. For example:
I was unaware of a sales tax holiday in my state and mistakenly collected sales tax. What should I do?
While sales tax holidays are generally popular among consumers (and therefore politicians), they do complicate sales and use tax compliance for vendors selling in affected areas. It is against the law to collect sales tax during a holiday, just as it’s against the law to not collect and remit it the rest of the time.
As always when it comes to taxes, the onus is on the vendor to keep informed of sales tax changes and respond accordingly. Businesses that sell a variety of products in multiple states may find it challenging to comply with multiple sales tax holidays — particularly in states where local participation is not required. For example, during Alabama’s Severe Weather Preparedness and Back-to-School sales tax holidays, state sales tax does not apply to affected goods but local sales tax is exempt only in participating localities. In local tax jurisdictions that opt to not participate in the holiday, local tax applies even though state sales tax does not.
In 2015, 18 states plus the Territory of Puerto Rico provided more than two dozen sales tax holidays. Tax-free periods applied to the following products:
- Clothing and footwear
- Energy efficient products
- Guns and hunting supplies
- Hurricane and other severe weather emergency preparedness supplies
- School supplies
Most tax-free periods are product-specific. However, Massachusetts provided a sales tax exemption for most tangible personal property with a sales price of $2,500 or less.
Complications arise even when dealing with the same type of holiday in multiple states. For example, both Louisiana and Mississippi provide for Second Amendment sales tax holidays during which pistols, rifles, archery items, and numerous hunting products are exempt. Yet there are differences. For example, during the Second Amendment tax-free periods:
- Certain apparel is exempt in Louisiana; apparel is not exempt in Mississippi.
- Louisiana exempts off-road vehicles intended for hunting; Mississippi does not.
- Mississippi does not exempt blinds, tree stands or binoculars; Louisiana does.
Learn more about Second Amendment tax-free periods.
If there is a silver lining here, it is that sales tax holidays are for specific periods of time, typically lasting anywhere from 24 hours to one week. Any sales or use tax collected in error during a tax-free period should be either 1) returned to the consumer or 2) remitted to the tax administrator (often, but not always, the state department of revenue). The first step should be to contact a tax advisor or an official at the state or local tax authority.
Have sales or use tax questions of your own? Ask them here.