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What are Sales Tax Holidays and how do they work?


What are Sales Tax Holidays and how do they work?

A sales tax holiday is a limited-time period where a state allows purchases of specified items to be made tax-free. If you make purchases of qualified products during a state’s sales tax holiday, you will not be charged sales tax on the purchases. States typically offer sales tax holidays in order to encourage consumer spending.

 

Sales tax holidays typically fall under one of the following categories:

 

  • Back-to-school: May include purchases of clothing, footwear, backpacks, computers or computer supplies, school supplies, books and more.
  • Clothing and footwear (excluding clothing accessories)
  • Energy-efficient home appliances (such as Energy Star and WaterSense qualified products)
  • Severe weather preparedness items: May include portable generators and other emergency preparation supplies.
  • Second Amendment: May include firearms, ammunition and hunting supplies.

 

Sales tax holidays generally have a threshold on the dollar amount for qualified items. For example, sales tax doesn’t apply to purchases of clothing and footwear that are $100 or less per item. If the item price exceeds the threshold, in most cases it is taxable in full.  In some states, the exemption may only apply to the state rate and not the local taxes or it might only reduce the state rate.  Sales tax holidays usually exclude business purchases.

 

Sales tax holidays can take place at any time of year, but the most popular time for them is in July and August. This is when “back-to-school” sales tax holidays take place. Sales tax holidays for severe weather preparedness items typically take place earlier in the year and Second Amendment holidays in early fall before hunting season starts.

 

Sales tax holidays can take place annually or can be one-off occurrences. States enact legislation stating when the sales tax holiday will take place, and if an annual holiday, how frequently. Holidays typically run for three days but may run longer in some states. Budget concerns often result in the cancellation or suspension of a sales tax holiday. 

 

Special rules apply to rain checks and returns and can vary by state so be sure to check the rules if one of these situations occurs.  Online sellers who are registered to collect tax in a state that has a sales tax holiday must also comply with the provisions.  In these cases, applying the rules for transactions that occur at the beginning and ending of the period must follow that state’s time zone. 

 

 

Looking for more information on sales tax holidays?

 

Visit our Sales Tax Holidays chart, regularly updated for upcoming holidays.

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