Now that Labor Day has come and gone, back-to-school sales tax holidays are over for most consumers, but accountants still have to deal with reporting what’s taxable and what’s not.
When filing the normal monthly tax return for stores, accountants in some states need to look out for a specific line to report sales made during sales tax holidays.
“There are several states that have a specific line that they would like you to report those sales on,” said CBIZ MHM manager Sonya Daniels. “For instance, in Missouri, it can totally change the actual return that you file. If you normally file a short form, they can actually switch you to a long form just because of the sales tax holiday. In that particular state the local jurisdictions can decide if they want to participate or not."
She noted that cities and counties make their own decisions on sales tax holidays in Missouri. "Where you would normally make all of your sales in that local jurisdiction and tax it at the full rate, you may have to break it out," said Daniels. "You may have to file the city sales on that line and then tax it out at the city rate, and you may have to file the local sales on the line that’s for exempt sales for the sales tax holiday. There are lots of things you have to watch out for in that regard to make sure, number one, that you capture the data, that you’re able to report it that way, and number two, that you know what states specifically want it reported in that manner and can put it on the return as needed.”
Unfortunately there are no across-the-board rules for reporting sales taxes, although the Streamlined Sales Tax Project tried to set up such a system back in 2000. In October 2005, the Streamlined Sales and Use Tax Agreement took effect, but so far only 24 states and the District of Columbia have signed the agreement. That means the rules can keep changing from year to year in many states.
“Your state may have a sales tax holiday this year and may not have it next year, and they may require you to file it this way, or they may say, ‘Just put them in exempt sales, and if we audit you, you’ll just have support to say it was a sales tax holiday, and we’ll look at it that way,’” said Daniels. “But there’s no across-the-board rule.”
Consumers don’t need to worry about reporting sales taxes for the most part, but accountants who work for retailers—or who have retailers among their clients—do. Still, it helps for consumers to understand the rules and the calendar so they can take advantage of the bargains.
“The average consumer doesn’t really have to worry about reporting anything, because it’s at the retailer as far as reporting goes,” said Daniels. “But the average consumer does need to make sure that they understand what’s taxable and what’s exempt. Say you’re in Tennessee and you’re buying back-to-school clothes. Each article is exempt if it’s $100 or less. Well, if you’re buying your kids some really cool [sneakers], and they’re $252, they’re not going to meet that rule. So you need to be aware of what the rules are so you’re not hit with tax in addition to that high cost and wondering why you’re not tax exempt.”
Sales tax holidays go beyond just back-to-school shopping. For instance, Georgia will have a sales tax holiday in October for Energy Star appliances.
“In some states it’s about buying energy efficient appliances and in some states it’s about buying hunting supplies,” said Daniels. “Louisiana is big on that. They cater to their hunters down there. And in some states it’s about being prepared for a hurricane. So if you don’t have children, don’t think you’re completely out of the loop. There may be other items that you need. Check it out and see if there is something else that might apply to you and if you had better wait until that time period before making a big purchase.”
For example, a consumer who plans to buy a generator to prepare for hurricane season is well advised to wait until such a high-cost item is tax exempt.
Retailers too have to worry about the appropriate reporting for sales tax holidays at odd times of the year. “It may not all be around July and August,” said Daniels. “There’s one that I think is in the beginning of October, as far as hurricane preparedness goes. You want to make sure that you’re up to date checking out your local department of revenue websites where you have tax reporting obligations to see if there’s anything coming up that you need to be aware of so that you stay in compliance by not charging tax on those items.”
To report on sales taxes, most retailers file on a monthly or quarterly basis, although some can be annual or semi-annual filers. “You normally are on a pretty consistent basis,” said Daniels. “For reporting, you want to make sure that you’re able to track those items that might be an issue for a sales tax holiday of some sort and that you can report them correctly during whatever time those items fall during that sales period.”
That can be a heavy burden for many retailers. “They not only have to have their tax department trained, but they need to have the people who are out there selling it know what’s going on,” said Daniels. “The last thing you want is somebody walking in the store and saying, ‘Hey, that’s supposed to be tax exempt,’ and your guy going, ‘No, we charge tax on that,’ and not understanding themselves. They’ve got a huge burden as far as making sure they’ve got their systems coded correctly before and after a sales tax holiday hits, and educating their people to make sure they understand all of the rules.”
Online retailers also need to be careful they obey the sales tax holiday rules. “If they’re collecting tax, they’ve got to be aware of the sales tax holidays and whether or not any of their items fall within those limits, and they’ve got to exempt the items as needed as well,” she said.
Even Amazon has begun to charge sales taxes in many states, bowing to pressure from state tax authorities.
“Amazon’s had a lot of rules coming at them with reporting,” said Daniels. “Here in Tennessee, they got a year’s reprieve where they didn’t have to report, but they have to report now because they have a distributorship here in Tennessee. But if they’re selling back-to-school supplies and clothing, or if they’re selling appliances and hunting gear, and they’re registered in those states [with sales tax holidays], they have to be aware of those things just like your brick and mortar retailers.”
