Do sales tax holidays apply to state and local sales taxes or to one but not the other? The answer depends on the state and locality, as well as the time of sale.
This means sales tax holidays can complicate sales tax compliance even more than you might think. In most states, these temporary sales tax exemptions apply to state and local tax, allowing consumers to pay no tax at all on qualifying items. This is the case in Florida, South Carolina, and Texas, among others.
Yet, sometimes state sales tax holidays only apply to the state portion of the sales tax. This is the case in Connecticut, which has no local tax. And it’s generally the case for two out of three of Louisiana’s annual sales tax holidays: the one for hurricane preparedness in May and the summer sales tax holiday in July. Louisiana takes sales tax holidays on vacation, mostly.
However, after a special session of the Louisiana Legislature made significant changes to sales tax exemptions and exclusions in June 2018 (see Act 1), the Louisiana Department of Revenue determined the three sales tax holidays “are not among the list of approved exclusions and exemptions from the 4.45 percent state sales tax.” Consequently, state sales tax applies to all qualifying items during all three tax-free periods between July 1, 2018, and June 30, 2025. This effectively places a temporary moratorium on two out of three sales tax holidays in Louisiana.
There’s more. The temporary exemption used to apply to both state and local sales taxes during Louisiana’s third tax-free period, the Second Amendment Weekend Sales Tax Holiday. Because Act 1 doesn’t affect local sales taxes, qualifying items will remain exempt from local Louisiana taxes during the Second Amendment Weekend Sales Tax Holiday through June 30, 2025, even though state sales tax applies.
You Get to Decide
Missouri and Alabama allow counties and municipalities to participate or opt out. Some localities in Alabama have let the Department of Revenue know they’ll participate every year; many decide annually to participate, or not. It’s one way to keep retailers on their toes.
Furthermore, localities may be able to exempt a portion of local taxes while applying the rest. For example, during the recent back-to-school sales tax holiday:
Geneva County applied the sales tax holiday to the 1 percent regular county sales and use tax but not the 1 percent education sales and use tax.
Spanish Fort granted the exemption for the 1.5 percent tax collected in jurisdiction 9102, but not the 1% tax collected in the Spanish Fort East Shore District (9202), or the 2.45 percent tax collected in the Spanish Fort Town Center District (9203).
Thomasville allowed the exemption for the 5 percent Thomasville sales and use tax but not the 0.5% school sales and use tax or the 0.5 percent tax collected for the hospital/industrial board.
While this gives local governments greater control over their tax revenue, it can create a real compliance nightmare for businesses. With fourteen states providing sales tax holidays this month, opportunities for savings are great. So is the likelihood that sales tax compliance will be even more of a hassle than usual for retailers.
Ready to jump in and help your clients? They’re counting on you!
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts and endeavors to make complex sales tax laws more digestible for both experts and laypeople.