Is that Father’s Day gift taxable? Wacky Tax Wednesday
- Sales and Use Tax
- Jun 14, 2017 | Gail Cole
Fathers have changed over time. More dads are staying home to care for their children instead of working outside the home. Those who do win bread are helping with domestic chores more consistently than their predecessors. They’re cooking, cleaning, folding laundry — and according to the Pew Research Center, they’re still finding time to help the kids with homework and walk the dog.
Father’s Day gifts have changed over time, too. Back in 1972, when the day became an official celebration of The Dad, ties were typically proffered. Aftershave. And I distinctly remember proudly presenting my father with homemade cards and crafts. Most gifts then were tangible, and as such, they were taxable — unless, like mine, your dad lived in New Hampshire or another sales-tax-free state. Today’s gifts are trending toward the experiential. A 2016 National Retail Federation survey found a “gift of experience” to be the first choice of 22 percent of Father’s Day shoppers. Even more millennial sons and daughter, two in five, prefer gifting experiences to things.
Could it be because experiences are often exempt from sales tax?
What we buy dad affects state sales tax revenue
Consumer habits impact sales tax revenue. States took to sales tax gradually — Mississippi was first in 1930, Vermont was last in 1969 — and began by taxing sales of the tangible. The majority still don’t tax most services. In fact, only Hawaii, New Mexico, South Dakota, and West Virginia tax all but specified services. California and Massachusetts are among those that tax very few. Alaska, Delaware, Oregon, Montana, and of course New Hampshire don’t impose a general, statewide sales tax.
The taxability of experiences is much less straightforward than the taxability of goods. However, services can generally be divided into the following categories for tax purposes: amusement/recreation, business services, personal services, professional services, services to real property, and services to tangible personal property. Some dads prefer fun: tickets to a game or a fishing trip. Others want to strike something off the honey-do list: lawn care for a year. And there are surely dads who dream of a spa day; who would say no to a massage?
Adding to the complexity, sales tax laws are in constant flux. As consumer tastes have shifted toward (exempt) experiences, some states are adapting their laws to capture more revenue from those sales. In the past few years, Minnesota, North Carolina, Oklahoma, and other states have expanded, or considered expanding, sales tax to certain services. On the other hand, the people of Missouri successfully rebelled against that idea. Either way, the taxation of services continues to be a topic of discussion in state capitals, and more change is likely to come.
Is your dad’s ideal experience taxable or exempt?
Gifting an experience is ideal for those of us who tend to be tardy: You can plan it now and execute it later. Read on to see how a smattering of dad-approved experiences are taxed (or exempt) around the country.
Dinner cruise dads: Admissions to public events occurring on boats are subject to sales tax in Washington D.C.
Fit dads: After years of back and forth, a gubernatorial veto, and a constitutional amendment, fitness classes are now securely exempt in Missouri. New workout clothes, however, are taxable.
Hunting dads: Separately contracted hunting guide services are generally exempt in Nebraska. However, if a landowner charges to hunt on the land and provides guide services for an additional charge, those sales are taxable.
Motorhead dads: Keeping that beloved old car shipshape is taxable in North Carolina. Keeping it clean is taxable in some states (e.g., Connecticut and New Jersey), exempt in others (e.g., California and Texas), and complicated in a few (e.g., Florida and New York).
Traveling dads: Lodging platforms (e.g., Airbnb and VRBO) have to collect and remit applicable taxes in some parts of the country, like Anchorage and the state of Texas. In other areas, it’s up to the owner to collect and remit, complicating reservations and payments.
Zip lining dads: Despite Missourians' desire to keep services exempt, the Missouri Department of Revenue ruled this spring that zip line tours are subject to tax. Zip lining is also taxable in Puerto Rico and Washington, but it is exempt in New York.
Whatever experience you’re looking to give the dad in your life, be prepared to pay sales tax, too. He’s worth it.
Interested in learning more about sales tax on services? Check out Service Taxability by State.