States offer back-to-school tax holidays
A total of 17 states have scheduled sales-tax-free shopping days for back-to-school and other items.
This post comes from Ashlea Ebeling at partner site Forbes.
It's back-to-school shopping season, and 17 states this year are offering sales-tax-free shopping days. The trick to saving a few dollars in sales tax is to time your trip to the mall right and put those impulse buys back on the rack.
Mississippi kicks off the season July 29, with 10 states following during the first weekend in August. Only Connecticut and Maryland give shoppers a full week to save.
Typically, clothing, shoes, school supplies, and sometimes computers are exempt from sales tax. But the deals vary and come with lots of fine print. In Mississippi, for example, shoppers can buy clothing and shoes priced at less than $100 per item, and the state's 7% sales tax is lifted. In Louisiana, the state's 4% sales tax is lifted on the first $2,500 of the purchase price of most individual items of personal property -- including fancy clothes and furniture. (Local sales taxes still apply.)
Each state makes up its own list of what's exempt and what's taxable. For example, adult diapers, dance shoes, duvet covers and iPads are sales-tax-free in South Carolina but taxable in Mississippi during the holidays. Post continues after video.
Florida, ready to cut residents, but not tourists, a break, is briefly lifting its 6% sales tax on clothing and footwear selling for $75 -- but not apparel sold at airports or theme parks. So you can shop tax-free at Wal-Mart and Target, but not Universal Studio's Wizarding World of Harry Potter or Disney World.
Last year there were 18 states with sales tax holidays. The changes: Illinois didn't renew its holiday; West Virginia's three-year holiday for Energy Star products ended; and Arkansas announced its first go at a holiday.
Of course, five states -- Alaska, Delaware, Montana, New Hampshire and Oregon -- don't levy sales tax any time of the year. Others, like Pennsylvania and Minnesota, exempt clothing from sales tax all year long. New York used to have a sales tax exemption for clothing under $110 but it's been suspended.
Connecticut is a perfect example of how crazy and complex the whole sales tax thing is for consumers. Connecticut had an all-year tax exemption for clothing and shoes under $50, but it was repealed as of July 1 (the same day the state sales tax went up from 6% to 6.35%). Connecticut also imposed a new luxury tax on July 1, so each item of clothing and shoes that costs more than $1,000 gets dinged with a 7% tax. Restrict your shopping to Connecticut's sales tax holiday -- Aug. 21-27 -- and the new 6.35% sales tax is lifted on clothing and shoes priced up to $300.
While people typically aren't paying sales taxes to their home state when they buy stuff online or out-of-state, many states, including Connecticut, impose a use tax, which means you're supposed to report those purchases on your individual income tax return or a separate use tax return. At least during the sales tax holidays, not paying is legit.
(Compliant Connecticut taxpayers filling out the use tax form for the 2011 tax year will have to make separate lists of items that are taxed at 0%, 6%, 6.35% and 7%, depending on the date of purchase and the purchase price of each item.)
A burden for retailers
Retailers have more to complain about, says Diane Yetter, founder of the Sales Tax Institute in Chicago, which advises businesses on their sales tax duties. "From the retailers' perspective, the holidays are a pain in the butt," she says. Special rules on layaways, gift certificates and exchanges are cumbersome. And the sales tax breaks only apply to goods purchased for personal use, not business use. "Retailers are at risk of audit if they aren't policing this," Yetter says.
Politicians promote the holidays as a way to stimulate the economy, but researchers have shown that the holidays simply shift the timing of purchases. "It's a political gimmick," says Mark Robyn, an economist at the Tax Foundation, and co-author of a 2010 report, "Sales Tax Holidays: Politically Expedient but Poor Tax Policy," available here. "If you want to cut taxes, do it the right way by cutting sales tax rates year-round."
Some states are doing just that. In the past legislative season, California and North Carolina both cut sales taxes. California's rate went down from 8.25% to 7.25%, and North Carolina's rate went down from 5.75% to 4.75%, both effective July 1.
Nevertheless, if you're going to buy a computer anyway, and it's sales-tax-free the third week of August, it's a good time to buy it.
Click here to see Forbes' full list of 17 states offering back-to-school shopping tax holidays.
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