What Retailers Need to Know about Back-to-School Sales Tax Holidays
The end of summer brings back-to-school shopping season, and this year, 14 states are offering back-to-school sales tax holidays—a designated period during which sales tax collection is not allowed on specific items.
Major retailers have been stocking backpacks, clothing, notebooks, binders, computers and writing utensils long before the Fourth of July weekend, preparing for this significant time of sales activity.
And while sales tax holidays like these help consumers, retailers may have challenges with the tax compliance burden—even if you use a third party to manage the rates you charge.
As customers purchase designated back-to-school items, retailers should ensure that your sales tax procedures take this short-term sales tax exemption into consideration appropriately in each jurisdiction with a sales tax holiday.
When are the back-to-school sales tax holidays?
With the longest back-to-school sales tax holiday in the Southeast, Florida allows qualifying purchases from July 24 – August 6, 2023.
Elsewhere in the southeast, the holidays are generally a weekend in duration. 2023 sales tax holidays are approved for:
- Alabama (July 21 – 23)
- Mississippi (July 28 – 29)
- South Carolina (August 4 – 6)
- Tennessee (July 28 – 30)
Georgia does not have a back-to-school sales tax holiday in 2023.
Do retailers have to comply with a sales tax holiday?
Yes, compliance is usually mandatory. The Florida Department of Revenue even encourages shoppers to report eligible sellers who are non-compliant, and it is the seller’s responsibility to refund any tax erroneously charged.
Are both state and local sales taxes included in the sales tax holiday?
It depends on the jurisdiction. In Florida, savings on purchases include both the state rate and the local discretionary tax. In contrast, not all localities are participating in the Alabama sales tax holiday.
What purchase scenarios could cause potential sales tax problems for retailers during the holiday?
- Purchases prior to the tax holiday period that are exchanged for another eligible tax-exempt item during the tax holiday period
- Purchases during the tax holiday period that are exchanged for an item of equal price after the tax holiday period
- “Buy one, get one free” sales of eligible items during the tax holiday period
- Gift card purchases during tax holiday used for purchases after tax holiday period
- Layaway purchases during tax holiday period
- Treatment of store coupons vs. manufacturers’ coupons during the tax holiday period
- Shipping charges
- Online vs. in-person purchases
What steps can retailers take to avoid these challenges and stay compliant with the sales tax holiday?
Since each state’s holiday covers different items, has different price thresholds and lasts for varying durations, it can be confusing to retailers to know what to adjust—even if you have automated sales tax systems.
Two things retailers can do to overcome challenges associated with the sales tax holidays are:
- Be sure that your point-of-sale systems are properly programmed or that your manual sales tax computations are configured correctly.
- Partner with a state and local tax advisor who can assist with guidance specific to your retail organization’s inventory and location.
Learn more about state and local tax for retailers
Learn more about the Alabama back-to-school holiday and participating localities here.
Learn more about the Florida program, item eligibility, and tax collection responsibilities here, and see a complete list of the state’s sales tax holidays here.
Warren Averett can help retail companies work through the challenges associated with sales tax holidays. Contact your advisor directly, or ask a member of our team to reach out to you.
