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Get Ready for Sales Tax Free Holidays

Get Ready for Sales Tax Free Holidays-1.jpgOhio, along with approximately fifteen other states is helping businesses boost sales during the back-to-school shopping season - one of the busiest periods of the year. Passed for 2017 only, Ohio’s S.B. 9 enacts a sales tax free holiday from 12:00 a.m. Friday, August 4, 2017 through 11:59 p.m. Sunday, August 6.

According the National Retail Foundation, in 2016, the average family was expected to spend an average of $673.57 on apparel, shoes, supplies, and electronics to get ready for the school year. The sales tax-free holiday enables businesses to attract more of these customers from home and neighboring states by strengthening brands, offering additional promotions and focusing on sales, not tax reporting.

The Legislation

While each state’s legislation sets its own guidelines, all businesses within those states must participate.  Some specific guidelines of Ohio’s S.B. 9 sales tax holiday are:

  • Includes tax exemptions for
      • Clothing priced at $75  per item or less;
      • School supplies priced at $20 per item or less; and
      • School instructional material priced at $20 per item or less.
  • Includes tax exemptions for qualified items sold to consumers by mail, telephone, e-mail, or Internet when certain payment and shipment timing guidelines are met. 
  • Does not exempt items used in a trade or business.
  • Does not limit the amount of the total purchase. The tax-exempt qualification is determined item by item.
  • Allows retailers to offer a discount to reduce the price of an eligible item to $20 (applies to school supplies) or less or $75 (applies to clothing) or less, to qualify the item qualify for the exemption.

The Prep

If your business sells in one or more states with legislated sales tax free days, you’re in for busier days during the tax-free holiday. If your business falls into this category, you can ease the stress ahead of time by:

  • Understanding the nuances in the legislation, including penalties for non-compliance;
  • Designing promotions to fully leverage purchase opportunities;
  • Ensuring your systems and processes will handle increased demand;
  • Staffing appropriately to guarantee positive customer experiences; and
  • Seeking expert advice on ways to maximize the potential of sales tax-free holidays.

The Rewards

Preparing for and successfully conducting business during sales tax free holidays benefits your business, consumers and the economy.

Your sales jump as you attract new customers, even from neighboring states, and increase business with those you know. According to the Economic Analysis on the Effects of Back-to-School Sales Tax Holiday in Ohio authored by the University of Cincinnati Economics Center, retail sales jumped 6.48% in August of 2015, the month of Ohio’s first sales tax holiday.

Consumers take advantage of tax free holidays to save money. The Economic Analysis study states that nationally, consumers saved approximately $3.3 million in taxes on purchases of back to school goods in 2015 totaling $46.75 million. The study states that there was no decrease in sales during the months prior to and after the August 2015 Ohio sales tax holiday which indicates there were no shifts in timing of consumer purchases.

Although it may seem counterintuitive, in Ohio, sales tax collections rose 9 percent during 2015’s tax holiday. It appears that while consumers made many tax free purchases, they also shopped for non-exempted items at the same time. 

Research suggests that tax free holidays are working as intended and will continue to spur additional sales for businesses while meeting consumer needs during a busy shopping season.

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Jonathan Ciccotelli is the Partner-In-Charge of Meaden & Moore’s Tax Services Group. For over 29 years, Jonathan has worked closely with private and public companies in manufacturing, transportation, distribution, construction, and retail under a variety of business structures, including S-corporations, C-corporations, consolidated groups, and limited liability companies. He enjoys running, cycling, and cheering on his kids at sporting events.

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