A Break From Tax? Sales Tax Holidays Explained

Rick Bromund
By Rick Bromund
backgroundshape

Does the stress of running your business have you longing for a beach getaway? Or thinking about a mountain retreat? Or perhaps you feel like a lot of small business owners do, and you just want a vacation from paying taxes. While we can’t get you to the beach or the mountains, we can tell you about a holiday we think you’ll appreciate -  a sales tax holiday. 

 

Wait - a holiday from sales tax? 

At this point, you may be asking - what’s a sales tax holiday? We’re here to break it down for you. A sales tax holiday is just like it sounds - a holiday, or break, from sales tax. At certain times during the year, select states will reduce or suspend sales tax on a specific category of items. As of 2021, 19 states offered some type of sales tax holiday, and the most common holiday by far is related to back-to-school shopping. 

  • Alabama
  • Massachusetts
  • South Carolina
  • Arkansas
  • Mississippi
  • Tennessee
  • Connecticut
  • Missouri
  • Texas
  • Florida
  • New Mexico
  • Virginia
  • Iowa
  • Ohio
  • West Virginia
  • Maryland
  • Oklahoma
  • Puerto Rico

*Alaska also has a sales tax holiday, but it only applies to the city of Craig, and participation in the holiday is optional.  

Here’s how it works: for a period of time surrounding a sales tax holiday (for example, before school starts), a state may announce that all items in their selected category will be exempt from sales tax. In the case of our back-to-school example, this could include a variety of school necessities including computers, clothes, stationery products, and backpacks. 

In addition to back-to-school shopping, sales tax holidays can include categories like severe weather preparedness, energy star certified items, firearm sales, and most recently, PPE or Personal Protection Equipment.  

 

What this means for you

For consumers, any tax-free purchase provides a nice discount, especially on some of the pricier items. 

Things get trickier if you find yourself on the retail sales side of a sales tax holiday. It’s critical that you are aware of the period any holiday applies to, and any item that will be included in the holiday.  If you are an eCommerce business that sells in multiple states, you need to not only be aware of your home state’s holidays, but also any state that you sell into. 

If you sell a variety of items and just a few are covered under the sales tax holiday, while it may be a pain to change your systems just for the holiday, charging tax on an exempt item is not something that will go unnoticed for long. In addition to having to refund the tax you collected in error, you could expose your business to lawsuits from customers. If you apply the sales tax exemption to the wrong products, you and/or your business is responsible for the uncollected tax amounts.

To learn more about what might be required during a sales tax holiday, find your state on our directory of State Sales Tax Reference links.

 

Bottom line

For consumers, sales tax holidays are a nice reprieve from the usual burden of paying sales tax. For retailers, you can stay on top of sales tax holidays by staying informed on what states are offering a holiday, when the holiday will occur, and what items will be covered. Once you have that information, make sure your sales tax collection process is following the rules of the holiday, and you’ll be golden.

Rick Bromund
By Rick Bromund
Rick Bromund heads the tax research team at ComplYant, a technology platform offering business owners and entrepreneurs a simple way to manage tax rules and requirements. Rick is an experienced professional in the tax industry and has previously held positions at Fortune 500 companies as well as one of the big 4 accounting firms

Related posts

Cash surrounds a laptop
Guide

Sales Tax Compliance 101

As a business owner, staying on top of your tax obligations isn’t always fun, but avoiding any surprises with Uncle Sam is always the better and less expensive option. While you be staying on top of paying federal and state income estimated taxes each quarter, you may be unaware of how sales tax laws affect your business. Here’s how to stay afloat. 
Close-up of a man and woman holding an open sign
Guide

New Business Filing 2021 Taxes? Here’s What You Need To Know

If you started your own business or side hustle in 2021, and want to get some additional info as we head into the upcoming filing season, you’ve come to the right place. The past 18 months or so have been filled with a lot of change, uncertainty, and challenges. And if those changes have taught us anything, it’s to be prepared - so here are some tips to help you stay proactive with your 2021 business taxes.
Tax Form Series: What is a K-1?
Guide

Tax Form Series: What is a K-1?

Running a business is hard enough without trying to decipher the various tax forms you receive. We're here to help with our Tax Form Series, where we’ll answer questions like who receives them and what they are used for.