By Paul N. Gada, CCH Financial Planning Toolkit Staff Writer
Several states have upcoming sales and use tax holidays, during which back-to-school items such as clothing, footwear, school supplies, and computers may be exempt.
Reaction to such holidays is mixed. State lawmakers see the tax holiday as a way to lessen the tax burden on working families and to jump-start local retailers, according to a report issued by the Federation of Tax Administrators (FTA). The report, State Tax Holidays: Tax Holidays Continue Despite Criticisms, says opponents of the tax holidays, however, see the policy as a gimmick, and not as helpful to the consumer as proponents claim. For a typical family spending $250 on back-to-school clothes, an average six percent sales tax exemption would result in $15 in tax savings for the family, the FTA notes.
Though the savings amount may seem relatively small, shoppers have previously flocked across state lines to take advantage of such sales tax holidays. A notable example occurred when New Jersey had a clothing and footwear sales tax holiday that helped fill its shopping mall lots with cars bearing New York license plates.
Small Business Opportunities
For small business owners, the shopping frenzy related to a state sales tax holiday should be viewed as a great chance to increase their sales and profits. To make the most of this opportunity, however, a small business owner must create a carefully planned marketing campaign with the sales tax holiday as its centerpiece.
At a minimum, the marketing campaign should notify potential customers of the savings available because of the sales tax holiday and entice them away from other businesses offering similar products. To accomplish these goals, there are many advertising and promotion options to choose from. Whatever your choices, the most important thing to do is to act fast before the sales tax holiday, and any related opportunities, expire.
Current Sales Tax Holidays
The following is a partial list of states with sales tax holidays in place for 2005. Check with your state's department of revenue regularly to make sure keep up to date on you don't miss out on the festivities.
Connecticut: Purchases of clothing and footwear that cost less than $300 per item will be exempt from Connecticut sales and use tax from August 21 through August 27, 2005. The one-week exclusion applies to sales made by Connecticut retailers, sales made by out-of-state retailers required to collect Connecticut use tax on sales to Connecticut customers, and purchases by Connecticut customers on which they would otherwise be required to self-assess use tax. The exclusion is applicable to each item sold regardless of how many items are sold to a customer in the same invoice, but the exclusion is inapplicable to any portion of the price of an item that costs $300 or more. Sales of clothing and footwear that cost less than $300 are reported on Line 1 of Form OS-114, Sales and Use Tax Return. Articles normally sold as a unit, such as a suit or a pair of shoes, cannot be separated and sold as individual items to qualify for the exclusion.
Florida: Effective from 12:01 a.m. July 23, 2005, through midnight July 31, 2005, books, clothing, footwear, and certain accessories with a sales price of $50 or less per item and school supplies with a sales price of $10 or less per item are exempt from Florida sales and use tax. The exemption does not apply to sales of books, clothing, or school supplies within a theme park, entertainment complex, public lodging establishment, or airport. For more details, consult Florida Tax Information Publication No. 05A01-02 available from the Florida Department of Revenue.
Georgia: Computers and computer accessories up to $1,500 per transaction, clothing and footwear up to $100 per item, and school supplies that cost $20 per item purchased during July 28, 2005, through July 31, 2005, are exempt from sales tax. The sales tax holiday is intended only for individuals and their personal use. It does not apply to purchases made for resale, purchases by businesses, items leased or rented, or items sold at sports facilities, theme parks, restaurants, public lodging establishments, and airports.
Iowa: The Iowa sales tax holiday on select clothing and footwear begins at 12 a.m. on August 5, 2005, and runs through midnight August 6, 2005. Any business that is open on those days is required to participate. During the holiday, no sales tax, including school and regular local-option sales taxes, will be collected on certain articles of clothing or footwear that have a selling price of less than $100. The exemption applies to each article priced under $100 no matter how many items are on the same invoice.
Missouri: Beginning in 2005, the sales tax holiday begins on the first Friday in August and ends on the following Sunday, and continues for each year thereafter. Retail sales of the following are exempt: (1) any article of clothing with a taxable value of $100 or less; (2) school supplies, but not to exceed $50 per purchase; (3) computer software with a taxable value of $350 or less; and (4) personal computers or computer peripheral devices, but the exemption may not exceed $3,500 for such items.
For the 2005 sales tax holiday, the ability for local governments to opt out of the holiday is limited to those that opted out in 2004. After the 2005 holiday, any political subdivision may adopt an ordinance or order to opt out of this event.
North Carolina: The 2005 North Carolina sales and use tax holiday begins at 12:01 a.m. on August 5 and ends at midnight on August 7. During that time, retail sales of the following items are exempt from all state and local sales or use taxes, including the Mecklenburg public transportation tax: (1) clothing and school supplies with a sales price of $100 or less per item; (2) sports and recreation equipment with a sales price of $50 or less per item; and (3) computers with a sales price of $3,500 or less per item. Moreover, sales involving layaway contracts and similar deferred payment and delivery transactions for qualified items are likewise exempt. However, printers, printer supplies, and educational software are not exempt during the holiday.
South Carolina: The annual South Carolina sales and use tax holiday will begin at 12:01 a.m. on Friday, August 5, 2005, and end at midnight on August 7, 2005. During this period, clothing, clothing accessories, footwear, school supplies, computers, printers, printer supplies, computer software, bath wash clothes, blankets, bed spreads, bed linens, sheet sets, comforter sets, bath towels, shower curtains, bath rugs and mats, pillows, and pillow cases are exempt from state and any local sales tax. Certain items, including, but not limited to, jewelry, cosmetics, and furniture, are not exempt during the holiday.
Texas: The seventh annual Texas sales tax holiday is set for August 5-7, 2005. Most clothing and footwear priced at less than $100 will be exempt. Clothing and footwear used primarily for athletic activities or for protective wear will not be eligible for the exemption. Accessories, such as watches and jewelry, will also be excluded. Lay-away plans may be used to take advantage of the holiday.
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Added to the news on July 18, 2005.
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