States with a back-to-school sales tax holiday in 2022

Absorbing sales tax is when a vendor pays the tax due without passing the tax on to the consumer. Some states don’t ever allow vendors to absorb sales tax; others do.

During its Shop Maryland Tax-Free Week, Maryland allows vendors to absorb some or all of the sales and use tax due on a retail sale. Thus, although the sales tax holiday applies only to clothing and footwear priced $100 or less, vendors can absorb the tax on clothing and footwear priced greater than $100 as well as the tax on items not eligible for the temporary exemption. Vendors opting to absorb sales tax must continue to separately state the tax from the sales price at the time of sale then pay the tax with the return for that period.

Retailers may also elect to absorb the tax on nonqualifying items in Virginia, so long as they separately state the tax on the invoice and can “demonstrate that the proper amount of tax has been accrued and remitted.” Absorbing sales tax has been allowed “throughout the year” since July 1, 2019; previously, it was permitted during sales and use tax holidays only.

It’s unlawful for retailers in Alabama and Connecticut to absorb sales tax at any time, but that could change. In fact, it’s best to verify with the state tax authority or a trusted tax advisor that it’s OK to absorb sales tax before you decide to do so, because sales tax laws in all states can change at any time.

Many sales tax holidays start on a Friday and run through the following Sunday, but they can be longer or shorter.

Most states specify the precise start and stop time. For example, the Arkansas sales tax holiday ends at 11:59 p.m., while the Texas holiday runs “through midnight.” Sometimes you have to hunt for that information: The New Jersey Division of Taxation doesn’t say anything about what time the state’s new 10-day exemption period starts or stops, but Assembly Bill 1522 says the annual exclusion period runs “between 12:01 a.m. on the ninth day preceding the first Monday in September of each year and 11:59 p.m. on the first Monday in September of each year.”

Point-of-sale systems should exclude sales tax as soon as a sales tax holiday commences and reinstate tax collection the moment it concludes. Would a state crack down on an otherwise compliant retailer for incorrectly taxing sales for one minute? It’s unlikely, but why not strive for punctuality?

A layaway is when a customer puts a deposit on an item and the retailer pulls it from inventory and holds it for them. Whether a layaway sale qualifies for a temporary sales tax exemption depends on the state.

In Connecticut, eligible items placed on layaway during a sales tax holiday qualify for the sales tax exemption; all subsequent payments are exempt from sales tax even if made after the holiday concludes. In Missouri, eligible items placed on layaway during the holiday don’t qualify for the exemption if the final payment is made after the holiday period. However, items placed on layaway prior to the holiday period do qualify for the exemption so long as final payment is made during the tax-free weekend.

Layaway sales are not eligible for the sales tax holiday exemption in Massachusetts.

Sales tax holidays in many states apply to both state and local sales and use taxes, but some sales tax holidays apply only to the state sales tax, and some states allow local governments to opt in or out of the holiday.

In nonparticipating jurisdictions, local sales tax must be charged on transactions that qualify for the state sales tax exemption. Many cities and counties in Alabama and Missouri opt to not participate, and this can complicate compliance for companies doing business in those states.

It’s common for states to exempt only certain items during a sales tax holiday, rather than all transactions. Thus, although “clothing and footwear” qualify for Virginia’s sales tax holiday, bowling shoes, goggles, and wetsuits do not.

Clothing intended for anyone above the age of six doesn’t qualify for the exemption provided during Florida’s sales tax holiday for baby and toddler clothing (July 1, 2022–June 30, 2023). However, most clothing for people of all ages is exempt during Florida’s back-to-school sales tax holiday (July 25, 2022–August 7, 2022) so long as it’s priced $100 or less.

Massachusetts has one of the broadest tax-free periods. Any single item of tangible personal property priced $2,500 or less qualifies for the Massachusetts sales tax holiday.

It’s common for states to set a price limit on eligible products, and items priced above that threshold don’t qualify for the tax-free period. Thus, Ohio’s sales tax holiday doesn’t apply to any item of clothing selling for more than $75, or any school supply item selling for more than $20.

Price restrictions can be tricky. For example, the first $40 of the charge for a qualifying backpack or bookbag is exempt during Maryland’s tax-free week, even if the full cost of the product exceeds $40; however, no portion of the cost of clothing priced above Maryland’s $100 clothing threshold is exempt.

Shipping, delivery, and handling charges may or may not be exempt, depending on the state. These charges can also affect eligibility for the temporary sales tax exemption.

Delivery charges are considered part of the sales price in Texas, so if they push the cost above the price threshold, the transaction won’t qualify for the temporary exemption. Maryland specifies that separately stated shipping or delivery charges are excluded from the sales price of otherwise eligible items; yet if a combined shipping and handling charge is legally considered as part of the sales price, it must be added to the price of eligible clothing and can push a transaction over the price threshold. It’s confusing.

Sales tax normally applies to charges to ship and handle taxable goods in Connecticut, but no tax is due on shipping and delivery charges associated with any sale that’s not taxable before adding those charges. Furthermore, “adding shipping and delivery charges to an item of clothing or footwear costing less than $100 does not make the item taxable, even if the price of the item exceeds $100 after the shipping and delivery charges are added.”

Policies regarding returns and exchanges vary from state to state like other sales tax policies.

For example, no tax is due on exchanges made after the sales tax holiday in Massachusetts. Likewise, no tax is due in West Virginia if a customer buys an eligible item during the tax-free period then exchanges it for the same item in a different size or color, even if the exchange is made after the sales tax holiday concludes.

However, if a consumer buys an eligible item during the West Virginia sales tax holiday and returns it after the tax holiday period for credit on the purchase of a different item, the retailer must charge sales tax on the sale of the newly purchased item.

These are just some of the issues registered retailers need to keep in mind when preparing for a sales tax holiday. For unregistered retailers, there’s another.

Businesses are required to register with tax authorities in states where they’ve established sales tax nexus, which is a connection that creates a sales tax collection obligation. Having a physical presence establishes nexus. Additionally, businesses with no physical connection to a state can create nexus solely through economic activity (i.e., sales or transaction volume). This is known as economic nexus.

All states with a sales tax have an economic nexus law on the books, though Missouri won’t start enforcing it until January 1, 2023. All states also provide an exception for companies selling beneath a certain threshold. Economic nexus thresholds vary from state to state and range from $100,000 in sales to $500,000 and 100 transactions. This state-by-state guide to economic nexus laws provides state-specific details.

Sales tax holidays can easily become an economic nexus trigger event for retailers that sell numerous qualifying items. Heightened sales during a two-to-six-day event can vault a seller right over the threshold and into a tax collection obligation — and some states require businesses to register immediately and start collecting sales tax on the very next sale.

Economic nexus laws affect international sellers as well as American companies. If you hit an economic nexus threshold in a state, you’re required to register and comply with the state’s sales tax laws whether you’re located in a neighboring state, Canada, or the United Kingdom.

Below is a list of states and territories offering a sales tax holiday for clothing and school supplies in 2022. Note that some states name their tax-free period “back to school” to underscore, while others have more general names.