Saving on sales tax – Wacky Tax Wednesday

How far are you willing to go to get a good deal?

T’is the season of holiday bargain shopping. The Black Friday sales offered by many retailers started prior to Thanksgiving, and Cyber Monday is stretching into Cyber Week. Bargains are being stacked on top of sales, and shoppers are responding in droves. Just ask the experts: “It was a strong weekend for retailers but an even better weekend for consumers, who took advantage of some really incredible deals.”

Thanks to some hard-learned lessons, my husband and I generally work under the assumption that there are no good deals. In our experience, the better the deal, the greater the hidden costs. But, of course, I do know of people who scour the earth for bargains and actually do reap the benefits; and sometimes, they save money by saving on sales tax.

Sidestep sales tax

When legal, avoiding sales tax can be a good way to save a percentage of total costs, anywhere from an average of 1.78% in Alaska to an average of 9.46% in Tennessee. This explains the popularity of sales tax holidays that exempt specific products (e.g., hunting supplies, energy efficient appliances, or school supplies) for short periods of time (a day, weekend, or week), in spite of the fact that they are of questionable economic value.

Occasionally. where permitted, businesses choose to absorb sales tax for different reasons. This fall, for example, a New York City pharmacy protested the fact that tampons are subject to sales tax by allowing women to shop tax free (men paid 7%, a portion of the normal sales tax due and the average rate of tax women pay for feminine hygiene products). Most years, a gallery in my home town absorbs sales tax during the month of April to help ease the discomfort of paying income tax on April 15. And recently, the University of Iowa Student Government passed a resolution to exempt students from paying tax on course material purchased at the UI bookstore. The state allows such an exemption, though as of this writing, it has yet to be approved by the university president.

During the holidays, retailers sometimes absorb sales tax to reward or entice customers. For example, UCSD faculty and staff paid no sales tax on qualifying Apple products at the University of California San Diego Bookstore on Cyber Monday this year. Unfortunately for deal seekers, such opportunities are rare. Although lawmakers in several states have considered instituting Small Business Saturday sales tax holidays to encourage local shopping and boost brick-and-mortar businesses, to date, none of the proposed bills have been enacted.

Purchasing taxable items online from a vendor not required to collect sales tax in your state is an easy way to sidestep sales tax. Yet, while once I may not have realized that most states require consumers to pay use tax when sales tax wasn’t collected at the time of sale, I now do. I’m not alone. State departments of revenue have taken pains in recent years to make use tax requirements crystal clear. Like me, many people do know about it now.

The moral

It’s sometimes possible to save money by saving on sales tax, and when it happens, it feels good. After all, it’s a way to stick it to The Tax Man, and that’s always kind of fun.

But for businesses, messing up sales or use tax is never fun; it often leads to lengthy audits, tax assessments, penalties, and interest. In some states, including California, Minnesota, and Vermont, it can even lead to a little public humiliation.

So treat your business to tax automation software this holiday season, and give yourself the gift of heightened compliance.