Sales tax holidays in the time of COVID-19

Update August 4, 2020: Face masks qualify as exempt clothing during the Florida sales tax holiday, according to a Florida Department of Revenue spokesperson. Other states may follow Florida's lead in this, although most states specifically exclude protective clothing from the temporary exemption. 

For some, nothing says summer like a sales tax holiday. But how are states handling sales tax holidays during a summer rife with COVID-19, when tens of thousands of new cases are emerging each day?

One way is to encourage consumers to shop from home. 

South Carolina’s 2020 sales tax holiday takes place August 7­–9. During that time, qualifying accessories, clothing, computers, and school supplies are exempt from the state’s 6% sales tax and applicable local taxes.

The South Carolina Department of Revenue reminds taxpayers, “As long as an item is eligible, it is tax-free whether purchased in-store or online.” It then reiterates: “Safe Shopping: Remember that eligible items are still tax-free if you shop online!”

Like in-state businesses, out-of-state sellers that have nexus with South Carolina (i.e., an obligation to collect sales tax) must comply with the sales tax holidays. Nonetheless, the department encourages consumers to shop local as well as online: “Check with your local retailer to see if they offer online shopping, delivery, or curbside pick-up.”

All orders of qualifying items accepted by a retailer for immediate shipment during the tax-free period qualify for the exemption in South Carolina, even if the actual delivery occurs after the sales tax holiday concludes. Delivery charges for exempt sales are also exempt.

Consumers opting to shop in-store are encouraged to practice social distancing. South Carolina doesn’t have a statewide mask ordinance, but the department reminds shoppers to comply with local mask ordinances, curfews, or other guidelines.

During the Texas annual sales tax holiday, which also runs August 7­–9, qualifying clothing and school supplies with a sales price of less than $100 are exempt from state and local sales tax.

Like the South Carolina Department of Revenue, the Texas Comptroller is encouraging consumers to shop remotely: “Qualifying items can be purchased online or by telephone, mail, custom order or any other means” during the sales tax holiday. Understanding that in-store shopping will also occur, the Comptroller urges “all retailers and shoppers to practice appropriate social distancing … during the sales tax holiday.”

Given this encouragement to shop remotely, retailers must understand how the holiday impacts delivery and shipping charges. Generally, qualifying items are tax free when:

• The item is paid for by the customer and delivered to the customer during the tax-free period; or
• The customer orders and pays for the item, and the seller accepts the order for immediate shipment during the tax-free period — even if delivery is made after the tax-free period.

Delivery, shipping, handling, and transportation charges are considered part of an item’s sales price in Texas, and therefore may affect the eligibility of a transaction. For example, a jacket with a sales price of $99 is below the $100 sales tax threshold and therefore qualifies for the exemption. Yet add a $5 shipping charge and the cost increases to $104, so sales tax applies to the full charge. 

School districts nationwide are working to determine the best path forward for families, students, and teachers, and some have already announced they won’t be offering on-site classes this fall because of COVID-19. Nonetheless, many students will need still new supplies; indeed, families may have to invest in new computers, laptops, or tablets, which are exempt from sales tax in some states during back-to-school tax-free periods.

Whether students return to the classroom or learn from home, states that provide back-to-school sales tax holidays will offer them as planned. And at least one state is offering an additional sales tax holiday because of the pandemic: August 7 through 9, food and drink sold by restaurants and limited service restaurants in Tennessee will be exempt from sales tax.

See 2020 sales tax holidays for a list of tax-free periods around the country. And if you sell into multiple states with tax-free periods, consider automating sales tax calculation, exemption certificate management, and returns. It offloads the burden of sales tax compliance.