Have you ever heard of a sales tax holiday, also known as a tax-free weekend? If not, you’re about to learn something new and wonderful. I mean just think about it, a holiday from sales taxes, what’s not to like?
This article will explain exactly what a sales tax holiday is, how they apply to online shopping, and how you can make the most of them.
What are sales tax holidays?
A sales tax holiday is a certain amount of time where the state allows the sales tax to be reduced or completely waived on certain categories of items. The goal of the sales tax holiday is to encourage consumers to spend money and the timing of these tax holidays often coincides with busy shopping periods (e.g., back to school shopping).
These holidays waive local sales tax and/or state sales tax for qualifying items during a specific exemption period. This sales tax exemption varies by state but every retailer that sells exempt items has to participate (and they want to because the tax break can drive increased sales).
For instance, if you live in Iowa, then this year (2020), you can take advantage of the annual back to school tax holiday. From August 7-8, 2020, you won’t have to pay sales taxes on clothing and footwear that is less than $100 per item (excluding clothing accessories).
To see if your state offers a sales tax holiday, what items you can purchase tax-free, and when the tax-free holiday will occur, you can check out the Sales Tax Institute website here.
According to the Sales Tax Institute, a sales tax holiday usually falls under one of the following categories:
- Back to school: purchase of things like clothes, footwear, computers, and other school supplies, books, backpacks, etc.
- Clothing and footwear (excludes clothing accessories)
- Energy-efficient home appliances (for example, Energy Star or WaterSense qualified products)
- Severe weather preparedness: includes different emergency supplies (for example, a portable generator)
If a holiday is listed as “annual,” then this means you can expect to see the same sales tax holiday every year. If the tax holiday is not listed as annual then this means it will require new legislation to determine if it will return.
The value of this, of course, depends on the sales tax rate in your state and whether the things you need to buy show up as an eligible item on the sales tax exemption list. This can be a great tax break for families facing significant back-to-school shopping expenses, but the value varies a lot based on the list of qualifying items, the size of the tax break, and exactly what the sales tax exemption means in terms of saving.
How sales tax holidays work for online purchases
If you want to participate in a sales tax holiday but you want to make your purchases online and avoid the shopping crowds, good news! In most cases, online purchases receive the same treatment as in-person purchases during tax-free weekends. This means you can shop for eligible tax-free items online too!
To make sure that your purchases are free from sales tax, it’s important that you determine exactly which items qualify during the tax-free weekend. Also, be aware that you will still be taxed on online items that don’t qualify for the sales tax exemptions. And, if you are making an online order, be sure to put your order through before the end of the tax-free holiday.
How to make the most of online sales tax holidays with online shopping
Before you get too excited about shopping online during a sales tax holiday, check to see if your state even offers a tax weekend. You can check to see whether or not your state participates and exactly what they offer here.
When it comes to what items you should stock up on online during the sales tax holiday, it will obviously depend on what your state offers. But here are some of the categories of items that you should look to save on:
Back to school supplies
If your state participates in an annual back to school tax holiday, then you can take advantage and stock up on qualifying items like back to school clothes and shoes, as well as school supplies. Depending on where you live you can save anywhere from 4% to 10% on sales tax. This all adds up, especially if you have multiple children in school. Think about it. If you spend $500 on qualifying school supplies and you live in a state that charges a 10% sales tax, that’s $50 back in your pocket. And it’s easy money. All you have to do is make sure you do your online shopping on the proper days.
If you’re a parent of babies then you’re going to love this one. Some states include the sale of diapers in the sales tax holiday. As you are probably aware, babies poop a lot and as a result, you go through a ton of diapers and spend a ton of cash. If you can afford to stock up during a sales tax holiday then do it. But don’t overdo it. Remember that your baby is going to grow and won’t fit into the same size of diaper forever. So, if you are hoping to stock up for an extended period of time then make sure you get some different sizes.
If you’re in the market for a new computer then you might want to wait until the tax-free weekend. This deal is not just for students. Before you get too excited, I’ll remind you to check your local government website and read through the categories that are offered during the tax-free weekend as the price thresholds put on different items.
For instance, in Massachusetts, you can purchase a computer up to a price threshold of $2,500. However, if you spend over $2,500 then that item will be subject to tax. And you will not just be taxed on the amount over $2,500, you will have to pay sales tax on the entire purchase.
Note: in Massachusetts, there is an exemption to this rule when it comes to clothing. You can check out their website here for more details.
Yes, you can do your tax-free holiday shopping online!
If you want to take advantage of the sales tax holiday but you also want to avoid the malls, no problem. Do all of your tax-free holiday shopping online. From back to school clothes, to diapers, and computers, there’s an opportunity to save big.
But remember, it’s your responsibility to determine whether or not your state offers a holiday tax weekend, as well as the items that are eligible, and the price thresholds on each purchase. And then the rest is easy. Just make sure you process your order during the tax-free weekend to take advantage of no sales tax!
–By Jessica Martel