Time to go back to school on sales tax
August is traditionally a big sales month for retailers who reap revenue from back-to-school shoppers. To help out local businesses and encourage consumer spending, several states provide sales tax holidays on essential items like clothing and supplies. Yet, despite being the second biggest retail event of the year, and with 17 states on board in 2015, sales tax holidays aren’t always an easy sell.
Some states, like North Carolina, have done away with them in favor of other tax breaks; others are on the fence or waiting until the last minute. Take Massachusetts, for example. With a mid-August date looming, lawmakers have yet to vote on whether or not to keep or repeal the holiday this year. Perhaps they’re hung up on the $25 million in sales tax revenue the commonwealth lost last year.
True, states do forgo a chunk of change to offer these tax-free breaks. But there’s also evidence of economic gain. Massachusetts retailers saw shopper traffic increase by 24% and sales jump nearly 60% during its two-day August sales tax holiday weekend in 2014, according to RetailNext. This year, merchants stand to make $231 million in retail sales should the sales tax holiday get the green light, according to National Retailers Association data.
But this is hard-earned revenue for retailers who, despite the “holiday” implication, aren’t given any respite from sales tax compliance. In fact, sales tax holidays can be one of the more difficult tax compliance activities to manage. First off, while states may exempt consumers from paying state sales tax, local jurisdictions don’t always have to follow suit. Cities and municipalities in some states have the choice to opt in or out of sales tax holiday promotions, often on short notice. This can leave retailers scrambling last-minute to ensure the right tax rate or exemption is applied to the transaction—a time-consuming and risky process if these changes need to be made manually in POS or ecommerce systems.
Consumers also no longer view sales tax holidays as a local event. They expect tax-free shopping to extend across all channels, not just in-store purchases. This can quickly become complicated for ecommerce merchants or remote sellers who have to comply with sales tax holidays in multiple states.
Keeping track of product exemptions and qualifying purchases, which change frequently and can vary from state to state, can also be cumbersome. Virginia, for example, recently added hand sanitizer and tissues to the list of qualifying school supplies. And Louisiana extends exemptions to all tangible personal property sales up to $2,500 during its August sales tax holiday.
Some states offer additional tax-free periods throughout the year on energy-saving appliances and emergency preparedness products. Mississippi and Louisiana have a tax holiday for hunting supplies and Colorado is offering a one-day sales tax holiday on (you guessed it) marijuana on September 16. Then there’s the issue of shipping tax. Some states exempt it during sales tax holidays; others do not. You practically need a PhD to keep it all straight!
Opt instead for a quick study of Avalara’s Sales Tax Survival Guide. It’s a great primer for any seller looking to get smart about sales tax compliance.
Extra credit: You know what never takes a holiday? Sales tax automation software. It’s always works and work flawlessly with Microsoft Dynamics NAV!