Sales Tax Holidays
A sales tax holiday is a specified time period during which items are exempted from transaction taxes that would otherwise be imposed on the sale of those items. Sales tax holidays vary in duration, with some as short as one day and others lasting several days. Three of the most common cases of sales tax holidays are exempting clothing and school supplies during back to school holidays, exempting emergency supplies during severe weather preparedness holidays, and exempting energy efficient products during Energy Star holidays. During sales tax holidays, states can exempt all property from taxation or tailor coverage to specific items. The qualifying items for these holidays can be fixed by statute or determined annually by each state's Department of Revenue. Some states exempt the items from all state and local taxation, while others exempt items only from state level taxation. Further, others allow local jurisdictions to opt in or out of the sales tax holidays.
An exemption during a sales tax holiday may be limited by the item’s amount. As an example, an Energy Star appliance may be exempted during an Energy Star holiday but only up to the amount of $1,500.00. Any appliance in excess of $1,500.00 may be exempt up to that amount, or may not qualify for any exemption at all, depending on the state’s laws. Similarly, an exemption may be limited by an invoice amount. As an example, during a back to school holiday, the first $100.00 worth of school supplies (pens, pencils, rulers, etc.) might be exempt from state and local tax, but any supplies in excess of $100.00 in the same transaction would be taxable.
In Determination, sales tax holidays are reflected by rates and/or rules. Generally, tax holiday (TH) rates are entered at the state and local level as needed. These TH rates reflect all applicable rates and tiers. For example, if a state exempts the first $100.00 worth of school supplies and the first $250.00 worth of clothing during a back to school holiday, then two separate rates would be applied to capture those two tiers. Rules are entered for each eligible product so that during the sales tax holiday those products trigger the appropriate TH rate(s) and capture the correct exemption. Tax codes such as HOLIDAY or ENERGY STAR HOLIDAY are used to trigger these TH rates.
If a supported tax holiday includes an eligible product that is not included in standard content, you must create a custom product and a custom rule. For example, Alabama has a Sales Tax Holiday in February for Severe Weather Preparedness that covers the purchase of generators up to the amount of $1000.00. Determination does not include a specific product for generators, so you would need to create a custom product and a custom rule to take advantage of the tax holiday rate.
To implement your own custom products, see "Managing Custom Products" in Products and to create custom rules, see Rules.