Sales Tax Slice: Getting into the Nitty-Gritty of Sales Tax Holidays

It’s back to school time, which means sales tax holidays. To take advantage of these seasonal savings, a colleague of mine went shopping during Virginia’s most recent sales tax holiday weekend. To her horror and dismay, she was charged sales tax on her clothing purchases! Upon her return to the store, she was issued a gift card with store credit to compensate her for the overpaid sales tax. Her story made me wonder: what administrative procedures and policies apply to sales tax holidays?

In Virginia, whose 2018 sales tax holidays ran from Aug. 3 to Aug. 5, purchases of qualified hurricane and emergency preparedness equipment, school supplies, clothing, footwear, and Energy Star and WaterSense products are exempt from sales and use tax. Retailers in Virginia are prohibited by law from failing to provide the sales and use tax exemption on qualifying items. Those who violate the law by collecting sales or use tax on nontaxable transactions must remit any erroneously or illegally collected tax to the Virginia Department of Taxation. Other states that require retailers to participate in their sales tax holidays include Oklahoma, South Carolina, and Wisconsin. South Carolina even specifies in guidance that it may revoke “any and all licenses … if the retailer passes on sales taxes that are not legally due.”

With respect to exchanging purchases, in Virginia and several other states, such as Tennessee, if a customer purchases a qualifying item during the sales tax holiday, but later exchanges the item for a similar qualifying item, no additional tax is due. No additional sales tax is due even if the exchanged item is in a different size, different color, or other feature, or if the exchange is made after the exemption period. If a customer purchases a qualifying item during the sales tax holiday, but returns the item and receives credit on the purchase of a different item after the sales tax holiday has ended, sales tax is due on the sale of the newly purchased item. The newly purchased item is taxable regardless of whether the different item would have qualified for exemption during the holiday.

In Florida, unlike most states, certain businesses can choose to avoid the administrative requirements of a temporary tax exemption. Specifically, qualified businesses can choose not to participate in the sales tax holiday if less than 5 percent of their gross sales of tangible personal property during calendar year 2017 were sales of items that would be exempt during the sale tax holiday period. Businesses that were not in operation during the 2017 calendar year can choose not to participate if less than 5 percent of the business’s inventory are items that would be tax exempt during the holiday. These businesses must send a written notice to the Florida Department of Revenue stating that they will not participate in the holiday.

In Wisconsin, if a purchaser is charged sales tax on an exempt item during a sales tax holiday, they generally must request a refund of the sales tax directly from the seller. If the sales tax overpaid to sellers is $50 or more, the purchaser may file a buyer’s claim for refund directly with the Wisconsin Department of Revenue.

Retailers struggling with the administrative challenges of sales tax holidays can at least be grateful that fall, and the start of the school year, are almost here.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Should states make sales tax holidays mandatory for all retailers?

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