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What Is a Sales Tax Holiday?

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For anyone who’s looking to purchase certain products or items, not having to pay sales tax makes a difference in the final price. What is a sales tax holiday? Do all states have sales tax holidays? 

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What is sales tax?

First, it’s important to understand what sales tax is and how a sales tax holiday works. According to Investopedia, sales tax is a consumption tax that the government imposes on the sale of goods and services. Sales tax is charged at the point of sale and passed on to the government by the merchant. 

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Sales tax varies by state and can include state, county, and city sales tax. For example, if a state charges 4 percent sales tax, a certain county charges 2 percent sales tax, and a certain city charges 1 percent sales tax, a resident in that city would pay sales tax of 7 percent. The 7 percent tax would get divided accordingly between the state, county, and city after the purchase is made.

The sales tax is a certain percentage of the item’s sale price. According to TurboTax, 45 states and an array of counties and cities across the U.S. charge sales tax in 2020. 

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What is a sales tax holiday?

A sales tax holiday is a certain period of time when a state waives sales tax or charges a reduced sales tax for specific items or categories. The goal of a sales tax holiday is to encourage consumers to spend money. 

Sales tax holidays can be annual or one-off occurrences depending on the legislation that individual states pass. 

Are there any exclusions during a sales tax holiday?

In most states, there is a threshold on the dollar amount for qualified items. Special rules can also vary by state for rain checks or returns, so consumers need to be informed before making any purchases. 

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When are most sales tax holidays?

States offer sales tax holidays at certain times of the year to boost consumer spending. For example, some states offer annual back-to-school sales tax holidays in late July and early August. Depending on individual states’ rules and regulations, consumers don’t have to pay sales tax on certain items including clothing, shoes, accessories, school supplies, and school equipment like laptops. Each state will have certain items that are included in addition to product price thresholds.

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A few states offer severe weather holidays. At certain times of the year, states waive sales tax on specific items that consumers need to buy to prepare for the severe weather season. Some of the items that have sales tax waived with certain price thresholds include extension cords, batteries, generators, coolers, tie-down kits, and tarps.

Four states offer an annual Energy Star holiday when consumers can buy Energy Star products and not pay sales tax. As with all sales tax holidays, certain terms and conditions apply. Some of the products included in the annual holiday are air conditioners, washers and dryers, furnaces, heat pumps, standard refrigerators, and LED light bulbs.

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A few states offer specific sales tax holidays like a 2nd Amendment holiday, a one-time food and drink holiday, and a general sales tax holiday. 

In Mississippi, there’s an annual sales tax holiday before hunting season starts. Sales tax is waived for certain hunting items like firearms, ammunition, archery equipment, and various hunting accessories. 

In Tennessee, the retail sale of food and drinks by restaurants and limited-service restaurants doesn’t have sales tax for one weekend in August.

In Massachusetts, there’s a specific sales tax holiday at the end of August that includes single items of tangible personal property valued at $2,500 or less.

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Why do states charge sales tax?

States use sales tax to pay for state and local budget items like schools, roads, and fire departments. Many cities and states rely on sales tax for most of their budgets. As a result, not all states offer sales tax holidays. Even if a state offers a sales tax holiday, certain counties and municipalities can choose to opt-out. 

Even if a state usually offers a sales tax holiday annually, it can choose to suspend the holiday if there are budget concerns.

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Which states have sales tax holidays?

According to the Sales Tax Institute, the following kinds of sales tax holidays are offered in select states. Consumers should check the sales tax holidays and dates yearly since they are subject to change.

  • Back-to-school sales tax holiday (Alabama, Arkansas, Connecticut, Florida, Iowa, Maryland, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia)
  • Severe weather sales tax holiday (Alabama, Florida, Texas, and Virginia)
  • Energy Star sales tax holiday (Maryland, Missouri, Texas, and Virginia)
  • 2nd Amendment sales tax holiday (Mississippi)
  • One-time food and drink holiday (Tennessee)
  • General sales tax holiday (Massachusetts)

Do certain states not charge sales tax?

Alaska, Delaware, Montana, New Hampshire, and Oregon don’t impose a general sales tax. However, they do have an excise tax on specific goods like gasoline, cigarettes, alcohol, and meals.

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