Thanksgiving and Christmas are great, but there’s another type of holiday that’s even more important (too far?). Sales tax holidays might not fill us with festive spirit, but it is crucial that you wrap your head around them as an online seller. You’d be amazed by how many of our clients get tripped up by this kind of obstacle.
When selling products to US consumers online, it’s super important to make sure that you’re playing by the rules – this includes tax holiday compliance. The good news here is that this is all far more straightforward than you might expect. This post should bring you up to speed.
The Main Problem for eCommerce Sellers
Once you have nexus with a state, you’ll need to make sure that you’re abiding by that state’s tax law. Online sellers who are new to the world of sales tax might do a decent job of making sure that they’re charging sales tax, but they can easily trip up when it comes to a holiday.
Charging sales tax on exempt goods during a holiday is never a good idea. It can throw off your books and customers will probably complain. We explain how to avoid this below.
What’s a Sales Tax Holiday?
Anyone who’s sat through Economics 101 knows that economic policy is all about incentives. You incentivize the things you want your citizens to do and you de-incentivize the things you don’t want them to do.
Tons of states use tax holidays to encourage certain types of purchases and resulting behavior. If you make certain products exempt from sales tax for a fixed period of time, the idea is that you boost spending and stimulate the economy in certain areas.
So, what kinds of sales tax holidays exist in the US?
Live in a state with regular forest fires, tornados, or other natural disasters? There’s a good chance that there’s a disaster preparedness holiday at least once a year. Florida’s holiday, for example, lifts sales tax on things like bungee cords, carbon monoxide detectors, and portable power banks.
Green energy holidays often apply to purchases that are in some way protective of the environment. New properties that come with pre-installed solar panels and low energy consumption are good examples of this.
One state-specific example can be found in Texas – the state’s ENERGY STAR sales tax holiday lifts sales tax on qualifying air conditioners, refrigerators, and much more.
Back to School
Back-to-school holidays are designed to encourage spending during the back-to-school rush toward the end of the school holidays. Sales tax is lifted on goods like school supplies like notebooks as well as some clothes and other items. If you’re selling this kind of product online in the states, make sure you’re compliant in time for the next relevant tax holiday.
Here is a graphic showing the states that have back to school sales tax holidays in 2022:
This kind of tax holiday will follow the direction of the nation’s politics. Right now (summer 2022) we’re seeing lots of gas-based holidays. Gun-related holidays are another common example. Political holidays can be a little less predictable than the other examples we’ve listed so far, so it’s important to keep your eyes peeled for any changes that occur year over year.
It’s worth mentioning that there are a handful of miscellaneous holidays that don’t really fall into any of the categories we’ve discussed above. Florida’s Freedom Week holiday, for example, is designed to get people out and enjoying themselves. Sales tax is temporarily lifted on things like boats and outdoor equipment.
That’s one way to encourage some exploring!
What Should You Do as an Online Seller?
So, we’ve covered what sales tax holidays are and why they matter, but what can you actually do about them as an online seller?
Your job is to make sure you’re not charging sales tax during a relevant holiday.
There are two main ways to do this:
The Manual Approach
Perhaps the simplest approach here – and indeed the approach we take with our clients – is to manually list all of the relevant holidays in your nexus states. Keep track of every holiday and set yourself a reasonable deadline to adapt to them.
Let’s zoom in on an example:
- The back-to-school sales tax holiday in a given state might run from August 1st to August 7th.
- During this time, all children’s clothing items that cost $100 or less are exempt from sales tax.
- It’s your job as an in-nexus seller to make sure that you don’t charge sales tax on these items between August 1st and August 7th.
Don’t worry, it’s pretty simple to address this obligation. Follow these basic steps:
- On July 31st, log onto your ecommerce platform(s) of choice.
- Turn off sales tax for any relevant items.
- At midnight on August 7th, log back onto your ecommerce platform.
- Turn sales tax back on for the items you changed.
It’s usually as simple as that!
Some companies like to use tax-compliance software like Avalara to automatically make settings changes. This is a perfectly valid option that can give users peace of mind. It’s just worth noting that it comes with an associated cost and is far from necessary.
Sales Tax Holidays Explained – A Helpful Resource
Want to learn more about the different sales tax holidays in the US? This resource from the Sales Tax Institute is super helpful!
Confused? We Can Help!
So there you have it! Hopefully the post above has helped to clear up the majority of your confusion. If you’re still scratching your head, you might find our sales tax guide helpful. It’s designed to transform you from a sales tax novice to a seasoned pro!
If you’re ready to hand off your sales tax compliance to the experts, please don’t hesitate to get in touch! We’re happy to take it off your hands.