If you’re selling in any state with a sales tax exemption in 2021, you need to understand how these temporary tax-exempt periods can impact sales tax compliance. Once primarily the concern of state-owned companies, sales tax exemptions can now affect online sellers with no physical presence in the state and create a sales tax disaster if not handled properly. There are numerous pitfalls to watch out for when selling on a sales holiday, including but not limited to:
- Participation options
- Eligible products
- Price restrictions
- Returns and exchanges
- Shipping and handling
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You will need to determine whether you are required to participate in a state’s tax exemption, whether you are required to collect or exempt applicable local taxes, and whether you are authorized to absorb tax on ineligible items if desired. In most states, sales tax exemptions are required for local jurisdictions, but some allow local tax jurisdictions (e.g., cities and counties) to waive. Unfortunately, these lists sometimes change at the last minute, making you angry.
Many states also require all businesses to participate in sales tax exemptions. Some states, however, offer a choice. Therefore, resellers must participate in the tax-free period but are not required to participate in the New Mexico back-to-school tax exemption. All businesses must participate and cannot absorb sales tax on ineligible items. Conversely, Texas allows retailers to pay the sales tax themselves rather than passing it on to customers. Once you have determined these factors, you need to set up POS systems to exempt eligible products.
Most individual tangible personal property items qualify for the temporary exemption during the Massachusetts sales tax exemption. Most states aren’t that generous. Tax exemptions typically focus on one theme: back to school or emergency preparedness. School clothing and supplies are exempt during a back-to-school event, while batteries, generators, and tarps are exempt during tax-exempt emergency preparedness periods.
However, the exemption may not apply to all products within the covered category. For example, raincoats qualify for the Mississippi sales tax exemption, but roller skates do not. A fishing vest would be eligible unless it helps you float, and you need to tax any product, not on the complete list of suitable school supplies. Eligible items may also need to be taxed if they exceed the price limit.
Most sales tax exemptions include price limits. In many states that temporarily exempt clothing, a $ 50 dress would qualify for an exemption, while a $ 250 dress would not. There are some exceptions to the price limit rule. Maryland’s tax-free period for energy-efficient appliances has no price restrictions; neither South Carolina’s August sales tax exemption nor Mississippi sales tax exemption for ammunition, firearms, and certain hunting supplies.
$ 2,500 for every single tangible item of personal property. It is in stark contrast to Florida, where this year’s recreational supplies and sales tax-exempt admissions exempt the first $ 50 off the sale price of safety rockets, the first $ 75 off the sale price of paddles, and so on. It’s a lot to manage, but with knowledge (and sales tax automation ), you can successfully exempt sales that need to be exempt and tax those that need to be taxed, including the layaway.
Layoff policies also vary from state to state and often depend on the terms of the sale. For example, consumers can purchase eligible items tax-free in Texas if the item is placed in stock or final payment is made during the tax-free period. No tax applies to installment payments when a customer places a product in stock during Connecticut’s tax-free week.
However, Connecticut sales tax must be charged when the final payment is made during the holiday on a product placed in-store before the holiday. Reduced sales of eligible items do not qualify for the temporary exemption. Could this be a penance for the fact that, for years, Massachusetts has given retailers a few days to prepare for sales tax exemptions?
Shipping And Handling
Tax policies related to shipping and handling charges are another bugaboo. In Mississippi, shipping and handling charges are not included in the sale price and therefore do not affect price limits.
Sales Tax Holidays Can Expand Your Nexus Footprint
You might feel that you don’t need to stress over deals in states where you’re not enlisted to gather and dispatch deals. Reconsider. Tax-exempt periods can build your business charge commitments by extending your nexus impression. Nexus is an association that permits a state to force an expense assortment commitment on a business. Having an actual presence in a state generally makes a bond.
Today, the nexus can likewise be made exclusively through deals exercises in a single state (economic nexus, for example, $ 100,000 in available retail deals or 200 different available retail exchanges in the current or past scheduled year. States permit an exemption for organizations that sell underneath the financial nexus edge. Tragically, the focuses fluctuate from one state to another, so regardless of whether you make an association with California until you (and your partners) make $ 500,000 altogether from deals of substantial individual resources in the past or current scheduled year, you should enlist in Arkansas after your 200th exchange.
This state-by-state manual for economic nexus laws gives state-explicit limit subtleties. The economic nexus should be considered because deals regularly increment on charge occasions, and an expansion in sales can make a retailer pass the financial nexus boundary. Assuming this happens to you, you might be needed to enlist with the state and begin gathering deals charged on the following exchange.