We’re in the midst of the holiday season, which means it’s that time of year when many of us scramble to shop for last-minute gifts. As most states impose sales and use taxes on sales of tangible personal property, you may want to factor these taxes into your shopping budget. However, states also offer many tax exemptions, so if you’re leaning toward purchasing customary presents like socks, ugly holiday sweaters, wine, or fruitcakes, here’s how your gift selection can affect your tax liability.
If you’re in the market for socks or ugly holiday sweaters, you may be in luck. Some states, like Minnesota, New Jersey, and Pennsylvania exempt sales of clothing. New York and Rhode Island exempt sales of clothing that are sold for less than $110 or $250 respectively, so as long as your socks or sweaters are below that price point you won’t owe tax on your purchases. If instead you decide to knit your own socks or sweaters for your loved ones, you may not owe any sales tax—as some states, like Massachusetts, exempt sales of knitting yarn, fabric, and thread to be incorporated into clothing.
If you’re thinking about bringing wine to holiday parties, the taxability of your purchase will often depend on where you buy it and from whom. Most states impose sales and use taxes on purchases of wine, but a few, like Pennsylvania and Rhode Island, do exempt certain sales of wine. More specifically, sales of wine by a liquor licensee are not taxable in Pennsylvania, and in Rhode Island, sales of wine by a Class A liquor store are exempt.
Fruitcake has been a (literal) lifesaver for those who need last-minute gift ideas, but how it’s taxed by states is somewhat murky. Most states exempt sales of grocery items, but do tax prepared food—though the definition of these terms varies from state to state. So, the taxability of fruitcake falls on whether your state considers fruitcake a grocery item, or prepared food. However, some states, like Texas, will exempt the sale regardless of whether they consider the fruitcake to be prepared food, if purchased directly from the baker who made the fruitcake.
However your purchases are taxed, I wish you expeditious and pain-free shopping along with a wonderful holiday season.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are there any gifts you wish your state would exempt?
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