Tax season isn’t the only time of year to save money on taxes. Every year, and at different times, most states offer sales tax holidays where certain items are completely tax-free. What’s included usually depends on the state; residents of Florida, for example, can purchase disaster preparedness items like generators, up to $750, tax-free at the end of May. Many states, like Maryland, time their sales tax holidays with back-to-school. This year, Maryland’s Sales Tax Holiday is August 11-17, 2019. Here’s what you can buy, what’s not included, and how vendors should be handling the sales tax.
Maryland’s Sales Tax Holiday Week began in 2010. It always falls on the second Sunday of August through midnight the following Sunday. Clothing and footwear priced at $100 or less qualifies, as well as the first $40 of backpacks. Online shopping also qualifies, with certain exemptions.
If you’re shopping for children going back to school, this is an excellent way to save on taxes. The average family is projected to spend about $684 on back-to-school costs, and with Maryland’s six percent sales tax rate, the Sales Tax Holiday can make a noticeable impact on the budget.
Here are some examples of scenarios that would qualify for the sales tax exemption:
- A regularly priced eligible item that costs more than $100 and is on sale for less than $100.
- A regularly priced eligible item that costs more than $100, and you have coupons that reduce its price to less than $100.
- If you buy multiple shirts, pants, other clothing items, and/or shoes where each item costs less than $100, the entire purchase would be tax exempt.
Other situations to be aware of:
- If a pair of pants costs $110, the entire purchase is taxable; however, if a bookbag costs $80, only the first $40 would be tax-free.
- If a suit is typically sold as one unit, it cannot be separated at the time of purchase to take advantage of the tax exemption.
Online transactions are included, too – as long as one of two conditions are met. You would either need to buy the eligible item and have it delivered before the end of the tax-free week, or you would need to order and pay for the eligible item, and the vendor would need to accept the item for immediate shipment, even if it delivers later.
In addition, some retailers may offer layaway services. Under state law, the transaction takes place when the layaway agreement is entered into, even if the full price of the item isn’t paid until the end of the layaway period. And, if you buy something tax-free and then exchange it later, you do not have to pay sales tax when the item is returned; however, if you buy something else later with the credit you earned in the exchange, sales tax would be due on the new item.
Here’s what is not included:
- Any clothing or footwear purchase over $100
- Accessories, like jewelry, watches, belts, or purses/bags
- Sports equipment or sports footwear
- Alterations to clothing
Businesses participating in Maryland’s tax-free week should be sure to separate and record sales taxes for eligible purchases. They need to separately state the tax from the ordinary sales price at the time of purchase. Records must indicate the type of item sold, the date it was sold, and the sales price. They can choose whether to absorb all or part of the sales tax and pay it on behalf of the customer.
Vendors have other options as well. They can choose to extend the sales tax exemption to items greater than $100, and they can choose whether to extend the exemption to other items, too. For example, a retailer that doesn’t offer eligible clothing or footwear items can still participate in Maryland’s tax-free week if they absorb all of the sales and use tax on behalf of customers. For some businesses, this may be an excellent marketing tactic to increase foot traffic and take advantage of a known sales tax exemption.
In addition to the August Sales Tax Holiday in Maryland, every February there are three days where residents can save on taxes for Energy Star Products. Mark your calendars for February 16-18, 2020 if you plan on buying Energy Star Products like an air conditioner, furnace, a washer or dryer, refrigerator, or LED light bulbs.