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What is a Sales Tax Holiday? How Does a Sales Tax Holiday Work?

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Question: What is a Sales Tax Holiday? How Does a Sales Tax Holiday Work?
Answer:

Many U.S. states designate a sales tax holiday once each year. During these specified days, merchants may sell specific items which are exempt from sales tax; usually there is a limit on the cost of the items. As an example, in Iowa August 6 and 7 were designated as the sales tax holiday in 2010. Clothing and back-to-school items costing $100 or less could be sold sales-tax free (including local-option taxes). This idea is a great break for the stores, because they can advertise and get lots of people into their store.

Besides clothing and back-to-school items (including computers), states have sales tax holidays for energy products, hurricane preparation, and hunting season (guns and ammunition).

Shari Waters, About.com Guide to Retailing, has some great ideas about how to prepare for a sales tax holiday. For example, if just some of your store's products are tax-exempt, you might want to make all items in the store tax-free (as long as your state allows this). If you do this, remember you must still pay your state the sales tax on items that are not part of the sales tax holiday.

This list of state sales tax holidays also includes links to state taxing agencies. Remember that the sales tax holiday is only certain days, only for specific items, and only for items up to a certain price.

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