Sales Tax Holiday
Frequently Asked Questions
1. Your sales tax holiday publication states “Texas shoppers get a break from state and local sales and use taxes…” Could you clarify who qualifies as a “Texas shopper?” For example, do shoppers from other states or countries qualify for the exemption?
“Texas shoppers” refers to anyone in Texas buying qualifying products during the sales tax holiday weekend at a store in Texas or from an Internet or catalog seller engaged in business in this state.
In most cases, purchasers do not need to issue an exemption certificate or any other type of documentation to sellers to buy qualifying item tax free during the sales tax holiday weekend.
There are exceptions, however, for some purchases of backpacks and school supplies:
- A purchaser buying more than 10 backpacks must provide an exemption certificate certifying that the backpacks are purchased for use by elementary or secondary school students.
- A purchaser buying school supplies under a business account must provide an exemption certificate certifying that the items are purchased for use by an elementary or secondary school student. “Under a business account” means the purchaser is using a business credit card or business check rather than a personal credit card or personal check; is being billed under a business account maintained at the retailer; or is using a business membership at a retailer that is membership based.
All sellers engaged in business in Texas that sell qualifying products should comply with the law (Tax Code Sections 151.326 and 151.327) and participate in this event.
If a seller charges tax on the sale of a qualifying item during the sales tax holiday, the purchaser can ask the seller for a refund. Rather than refund the tax directly to the purchaser, the seller may elect to assign its rights to the refund to the purchaser so that the purchaser can request the refund directly from the Comptroller. To do that, the seller should provide the purchaser with a signed Assignment of Right to Refund (Form 00-985) (PDF, 20KB). The purchaser would then file that form along with the refund request and copies of invoices or receipts with the Comptroller's office.
Rentals and leases of qualifying backpacks and school supply products (including “rent to own” contracts), however, qualify for exemption during the sales tax holiday. Under Tax Code Section 151.005, the definition of a “sale” includes the exchange, barter, lease or rental of tangible personal property. Therefore, rental and lease contracts for qualifying items entered into during the sales tax holiday weekend will qualify for the exemption. The exemption will only apply to the specified rental or lease period designated by the contract. Extensions or renewals of contracts will not qualify unless they occur during another applicable sales tax holiday.
No. The sales tax holiday exemption applies only to purchases of qualifying clothing, shoes, backpacks and school supplies made during the holiday. Customers who purchase eligible items before or after the designated sales tax holiday period cannot receive a refund of the taxes unless another exemption applies.
6. Can pre-packaged combination sets or kits that contain items qualifying for exemption during the sales tax holiday and items that do not qualify for the exemption be sold tax-free during the holiday? For example, I sell pre-packaged school supply kits. The kits contain qualifying items such as pencils, paper, crayons and glue, but also contain items such as plastic baggies and tissues that do not qualify. Can I sell the pre-packaged kits tax-free during the sales tax holiday?
The primary components of a pre-packaged kit determine its eligibility for the sales tax holiday exemption. If the primary components of a pre-packaged kit are qualifying items, then the entire pre-packaged kit can be sold tax-free during the sales tax holiday. A pre-packaged kit that is primarily made up of non-qualifying, taxable items does not qualify for the holiday exemption even if the kit includes some qualifying items.
7. Do special orders qualify for the sales tax holiday? My customers place an order and make a down payment or deposit when placing the order, but the merchandise may not be ready for pick up for several weeks. I have read that the sales tax holiday provides for layaway purchases, but does it also apply to the special or custom orders of eligible items placed during the holiday period?
The answer is “no” if the customer only makes a down payment or deposit during the sales tax holiday period. However, the exemption does apply if the order for the qualifying item is accepted by the seller and paid in full by the customer during the holiday period, even if delivery is made after the sales tax holiday period ends. A seller “accepts” an order when the seller has received payment in full and all information necessary to complete the sale and has taken action to fill the order for immediate shipment. Actions to fill an order include placement of an “in date” stamp on a mail order, or assignment of an “order number” to a telephone order. An order is for immediate shipment when the customer does not request delayed shipment. An order is for immediate shipment even if the shipment may be delayed because of a backlog of orders or because stock is currently unavailable to, or on back order by, the company.
House Bill 1801 (81st Legislature, 2009) limits the school supplies eligible for exemption during the sales tax holiday to only those items specifically listed and identified as “school supplies” as that term is defined in the Streamlined Sales and Use Tax Agreement.
The Streamlined Sales and Use Tax Agreement (SSUTA) was developed over several years through the joint effort of over 40 states and many small and large retailers and trade groups. The goal of Streamlined Sales Tax (SST) is to substantially reduce the burden of tax compliance for sellers by simplifying and modernizing sales and use tax laws across state lines in order to increase voluntary sales and use tax collections by sellers engaged in interstate commerce and to encourage Congress to pass a law that would allow states to require the collection of tax on those sales.
Transportation charges to deliver an item sold (i.e., delivery charges, shipping and handling, etc.) that are billed by the seller to the purchaser are part of the final selling price of the products sold during the holiday, even if separately stated on the bill or invoice. Transportation charges billed by the seller to the purchaser are exempt if the item sold is exempt. For example, delivery charges billed by the seller of a blouse to the purchaser during the sales tax holiday are exempt because the delivery charges are part of the final selling price of the exempt item.
Transportation charges must be properly collected when a package or delivery contains both exempt and taxable items. For example, assume a retailer sells shorts and shirts tax-free during the sales tax holiday. The same customer also purchases golf shoes, which do not qualify for the exemption. The retailer charges the customer a delivery fee of $5 per item. The $5 delivery fees for the qualifying shorts and shirts is exempt from sales tax, but the $5 delivery fee for the golf shoes is subject to tax because the shoes are taxable.
However, if the delivery charge is a flat rate per package or delivery address, and the amount charged is the same regardless of how many items are included in the package or delivery, for purposes of the exemption, the total charge may be attributed to one of the items in package rather than proportionately allocated between the items. For example, assume a seller charges a flat fee of $10 per customer address for delivery regardless of the number of items delivered to that address. Assume that during the sales tax holiday, a customer purchases a qualifying calculator tax-free, a taxable book and a taxable football and the seller charges the customer the flat fee of $10 for delivery of all three items. Under these facts, the seller may attribute the $10 charge for delivery to the sale of the calculator (a qualifying exempt item) and does not have to split the delivery charge between the calculator, book and football. Because the charge may be attributed to the calculator, the entire flat fee delivery charge qualifies for the exemption. The sales invoice must clearly identify that the delivery charges were attributed to the exempt item and separately state the tax due on the non-qualifying merchandise.
Delivery charges billed in connection with the sale of an item may disqualify some of those products from the exemption. During the sales tax holiday, only clothing, backpacks and school supplies with a total sales price less than $100 qualify for exemption from sales and use tax. The total sales price includes charges by the seller for delivery. The addition of delivery charges to the retail price of an item will cause the loss of the exemption if the total price exceeds $100. For example, the purchase of a dress priced at $89 plus a delivery charge of $10 will have a total sales price of $99 and will qualify for the exemption. But, a dress priced at $99 with a delivery charge of $10 would not qualify for the exemption because the total sales price would be $109 which exceeds the $100 cap.
Textbooks, computers and software are not exempt during the sales tax holiday. The legislation authorizing the sales tax holiday provides an exemption for only the specific items of clothing, footwear, backpacks and school supplies defined in Texas Tax Code Sections 151.326 and 151.327 and Comptroller Rule 3.365.