Sales tax holidays coming up in several states

It is no secret that sales tax holidays are controversial amongst economists. A MarketWatch article quoted the deputy director at the Institute on Taxation and Economic Policy as opining that “[s]ales tax holidays may provide some taxpayers savings on necessary purchases, but they’re a distraction from the bigger problems of our states’ upside-down tax systems.” Similarly, delivering tax relief could be more targeted and effective than sales tax holidays: “Having twice as much of your income be tax-free is more meaningful to a low-income person than taking off the sales tax one weekend a year,” said the executive vice president of the Tax Foundation.

Controversies notwithstanding, Ohio, South Carolina, and Texas will be offering tax holidays in the upcoming weeks to give shoppers a break on back-to-school items, like clothing, school supplies, computers, and the like. Here are the details.

Ohio sales tax holiday

In the Buckeye State, lawmakers passed SB 9, which provides for the exemption from the 5.75 percent state sales and use tax rate on August 4, 5, and 6, 2017.

In an analysis of the 2015 sales tax holiday, the Economics Center at the University of Cincinnati estimated the following:

1. Consumers saved approximately $3.3 million in taxes on purchases of back-to-school goods totaling $46.75 million.
2. Overall retail sales in Ohio increased by 6.48 percent in August 2015.
3. During the three day tax exempt period, there was a gross increase in sales tax collections of about 9 percent.
4. There was not a reduction in purchases during the months prior to the sales tax holiday, but economists anticipate that over time, there would be such shifting.

During this year’s event, the following items are exempt from sales and use tax:

• Clothing priced at $75 per item or less
• School supplies priced at $20 per item or less
• School instructional material priced at $20 per item or less   

Items used in a trade or business are not exempt under the sales tax holiday.

Ohio’s Department of Taxation’s FAQ webpage answers a number of questions about what items qualify for the exemption. For example, “’[c]lothing” is defined as all human wearing apparel suitable for general use,” and includes, but is not limited to:

• Shirts
• Blouses
• Sweaters
• Pants
• Shorts
• Skirts
• Dresses
• Uniforms, both athletic and nonathletic
• Shoes, including steel-toed shoes, shoe laces, insoles for shoes, sneakers, sandals, boots, and overshoes
• Slippers
• Underwear and socks
• Stockings, hosiery, pantyhose and footlets
• Coats and jackets, including rainwear
• Gloves and mittens for general use
• Hats, caps, and ear muffs
• Belts and suspenders;
• Neckties
• Scarves
• Aprons (household and shop)
• Lab coats
• Athletic supporters
• Bathing suits, bathing caps, beach capes and coats
• Costumes
• Baby receiving blankets
• Diapers for children and adults, including disposable diapers
• Rubber pants
• Garters and garter belts, and girdles
• Formal wear
• Wedding apparel

The FAQs also reveal what is not considered clothing, and therefore not tax exempt. Examples include protective equipment (which includes breathing masks), clean room apparel and equipment, ear and hearing protectors, face shields, hard hats, helmets, paint or dust respirators, protective gloves, safety glasses and goggles, safety belts, tool belts, and welders gloves and masks.

South Carolina sales tax holiday

Like Ohio, South Carolina’s exemption dates are August 4-6, 2017. In Information Letter No. 17-7, the Department of Revenue lists the categories of items for which the 6 percent rate will not apply during this time:

• Clothing
• Clothing accessories (e.g., hats, scarves, hosiery, and handbags)
• Footwear
• School supplies (e.g., pens, pencils, paper, binders, notebooks, books, book bags, lunchboxes, and calculators)
• Computers, printers and printer supplier
• Computer software
• Bath wash cloths, blankets, bed spreads, bed linens, sheet sets, comforter sets, bath towels, shower curtains, bath rugs and mats, pillows, and pillow cases

Certain other items will not be tax exempt, such as:

• Jewelry
• Cosmetics
• Eyewear
• Wallets
• Watches
• Furniture
• Rental of clothing or footwear
• Items for use in a business,
• Items placed on layaway or similar deferred payment and delivery plans

The department’s website offers several additional publications to help shoppers understand how the tax holiday works:

1. Shopping lists containing a more detailed itemization of tax exempt items in the categories of Clothing and Accessories, School Supplies and Technology , and Dorm and Home.
2. SC Revenue Ruling #10-7, containing examples of exempt and nonexempt items.
3. SC Revenue Ruling #10-8, addressing frequently asked sales tax holiday questions.

The department notes that in past years, shoppers have saved between $2 million and $3 million during the holiday weekend.

Texas sales tax holiday

The Texas Comptroller’s website explains that this year’s back-to-school tax free weekend is August 11 - 13. As in previous years, most clothing, footwear, school supplies and backpacks priced less than $100 are exempted from sales and use taxes. The comptroller suggests that shoppers could save about $8 on every $100 they spend. The normal sales and use tax rate is 6.25 percent.

There is some fine print that shoppers should be aware of. For instance, with respect to clothing and footwear, if a customer purchases two shirts for $80 each, for a total of $160, then both items qualify for the exemption, even though the total purchase price exceeds $99.99.

In addition, the exemption does not apply to sales of special clothing or footwear, like golf cleats and football pads, which are not normally worn unless engaging in sports activity. Tennis shoes, jogging suits and swimsuits, however, do qualify for the exemption because they are commonly worn for purposes other than athletic activity.

The comptroller’s website contains other details for backpacks, school supplies, layaways and rainchecks, advertising, as well as a page of frequently asked questions and answers.

Other states having sales tax holidays in late July and early August are Arkansas (August 5-6), Connecticut (August 20-26), Iowa (August 4-5), Louisiana (August 4-5), Maryland (August 13-19), Mississippi (July 28-29), Missouri (August 4-6), New Mexico (August 4-6), Oklahoma (August 4-6) Tennessee (July 28-30) and Virginia (August 4-6).