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Get Ready for Back-to-School Sales Tax Holidays

By Marcia Richards Suelzer, MA, JD | August 01, 2012

August can be a good month to be a retailer—provided you are in the right part of the country and are prepared for back-to-school sales. Seventeen states have declared back-to-school sales tax holidays that provides a time-limited exemption from the state sales tax that would normally be collected on certain items. Generally, the holiday takes place during one weekend in August. Not all items are exempt from tax during the holiday. All the states provide that the exemption applies only to certain items and most limit the exemption to items under a certain price.

Warning

Depending upon the state, city or other local sales taxes may still apply.

It is essential that you know the rules for your state because the types of items that are tax-exempt varies widely. In addition, the rules regarding rain checks, layaway, and gift certificates vary among the states. Finally, each state has its own spin on how to report tax-exempt sales; some require specific reporting and others do not. The bottom line for nearly every small business is recordkeeping headaches in determining what is exempt from tax, and collecting accurate amounts of tax.

Six Steps to Take to Make the Most of the Sales Tax Holiday

  1. Learn what is tax-exempt in your state. The specificity and subtlety of the laws can be surprising. For example, in Florida, a backpack is exempt from tax during the sales tax holiday, but a briefcase is not. Our chart (see below) provides some basic information, but your state department of revenue website provides a comprehensive listing of what is and isn't tax-exempt. Make enough copies of the list so that there is one at every cash register.
  2. Review your inventory needs. Make sure you have a sufficient quantity of merchandise to meet the demand—particularly for items that are only purchased in large quantities at back-to-school time, such as spiral notebooks. This is particularly important for customer good will because if you issue rain checks, the customer will have to pay tax on the items (unless the rain check is redeemed during the holiday period).
  3. Know the rules for discounts, buy-one-get-one offers, gift cards, layaways, and returns. In many states, a store discount can lower the price to make an item tax exempt, but a manufacturer's coupon cannot. Some states permit you to average the value of items purchased as a "Buy-One-Get-One Free," but do not allow you to average items purchased as "Buy One Get One for Half Price." Every employee who will handle these types of transactions needs to have this information readily accessible. Again, your state's department of revenue website should have complete information for each of these situations.
  4. Develop your back-to-school marketing strategy. Most states that have holidays require merchants to participate if they sell any of the items on the tax-exempt list. So, you may as well make the most of it by designing special promotions and advertising to bring new customers into your store. Consider offering a discount or special pricing on items that are not tax-exempt, such as sports equipment or cosmetics, to encourage customers to do more of their shopping at your store.
  5. Train your employees. This is particularly important if you will not be reprogramming your point-of-sales system to handle the sales tax holiday period. Not only must your employees know which items are tax-exempt, they need to understand the rules regarding discounts, buy-one-get-one offers and other pricing options. Again, your department of revenue is your best source of information.
  6. Reprogram your point-of-sales systems. You will need to account for tax-exempt and non-exempt sales. If you rely on a service to handle your systems, make sure you contact them. (If you operate a business in Louisiana, make sure to claim the $25 credit per cash register that the state provides to help defray your reprogramming costs.)

The following table provides an overview of the rules in each state. If you live in one of these states, you will want to download the specific information for your state.

2012 Back-to-School Sales Tax Holidays
State Dates Items Rain checks/Layaway More Information
Alabama August 3-5 Clothing: $100 or less/item
Computers, software: $750 or less/item
School supplies: $50 or less/item
Noncommercial books: $30 or less/item
Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt only if final payment occurs during holiday
Alabama Department of Revenue
Arkansas August 4 - 5 Clothing: $100 or less/item
Clothing accessory: $50 or less/item
School supplies, school art supplies, school instructional material: No maximum price
Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt if final payment during or after holiday
Arkansas Department of Revenue
Connecticut August 19-25 Clothing and footwear: $300 or less/item Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt, provided item was placed on layaway during holiday
Connecticut Department of Revenue
Florida August 3-5 Clothing: $75 or less/item
School supplies: $15 or less/item
Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt, provided item was placed on layaway during holiday
Florida Department of Revenue
Georgia August 10 - 11 Clothing: $100 or less/item
Computers: $1,000 or less/item
School supplies: $20 or less/item
Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt only if final payment during holiday
Georgia Department of Revenue
Iowa August 5-6 Clothing and footwear: $100 or less/item Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt provided item was placed on layaway during holiday
Iowa Department of Revenue
Louisiana August 5-6 Any tangible personal property (except cars and meals), that is purchased for nonbusiness use: $2,500 or less/item Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt if final payment during or after holiday
Note: Retailers are eligible for a special "reprogramming" sales tax credit
Louisiana Department of Revenue
Maryland August 12-18 Clothing and footwear: $100 or less/item Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt if final payment during or after holiday
Maryland Department of Revenue
Mississippi July 27-28 Clothing or footwear: $100 or less/item Rain checks: Exempt only if redeemed during holiday
Layaway: Taxable. Layaway sales of eligible items do not qualify for the holiday
Mississippi Department of Revenue
Missouri August 3-5 Clothing: $100 or less/item
School supplies: Up to $50 per purchase
Computer software: $350 or less/item
Computers & peripherals: Up to $3,500
Rain checks: Exempt only if redeemed during holiday
Layaway: Only if final payment during holiday
Retailers who have less than two percent of merchandise qualified for the holiday can provide a tax refund to customers.
Missouri Department of Revenue
New Mexico August 3-5 Clothing and footwear: $100 or less/item
School supplies: $30 or less/item
Computers: $1,000 or less/item
Computer peripherals: $500 or less/item
Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt only if final payment during holiday
Retailers are not required to participate
New Mexico Department of Revenue
North Carolina August 3-5 Clothing: $100 or less/item
School supplies: $100 or less/item
School instructional material: $300 or less/item
Sport/recreational equipment: $50 or less/item
Computers: $3,500 or less/item
Computer supplies: $250 or less/item
Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt if final payment during or after holiday
North Carolina Department of Revenue
Oklahoma August 3-5 Clothing and footwear: $100 or less/item Rain checks: Exempt only if redeemed during holiday
Layaway: Exempt only if final payment during holiday
Oklahoma Department of Revenue
South Carolina August 3-5 Clothing, clothing accessories, footwear, school supplies, computers, printers, printer supplies, computer software, bath washcloths, bath towels, bath rugs, shower curtains, bed linens, pillows: No per item price limit Rain checks: Exempt only if redeemed during holiday
Layaway: Taxable. Layaway sales of eligible items do not qualify for the holiday
South Carolina Department of Revenue
Tennessee August 3-5 Clothing: $100 or less/item
School and school art supplies: $100 or less/item
Computers: $1,500 or less/item
Rain checks: Exempt only if redeemed during holiday
Layaway:Exempt if placed on or picked up from layaway during the holiday
Tennessee Department of Revenue
Texas August 17-19 Clothing and footwear: $100 or less/item
School supplies: $100 or less/item
School backpacks: $100 or less/item
Not specifically stated Texas Department of Revenue
Virginia August 3-5 Clothing and footwear: $100 or less/item
School supplies: $20 or less/item
Rain checks: Only if redeemed during holiday
Layaway: Exempt if placed on or picked up from layaway during the holiday
Virginia Department of Revenue
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