Sales Tax Holiday Questions for Retail Dealers
- General Information
- Absorbing the Tax
- Reporting and Record Keeping
- Taxable and Nontaxable Transactions
What is a sales tax holiday?
A sales tax holiday is a temporary period when sales taxes are not collectible or payable on all or a specific class of purchases.
When do Virginia's sales tax holidays take place?
Legislation passed by the 2015 General Assembly combines three existing sales tax holidays into one-three day holiday in August. Because the legislation takes effect July 1, 2015, it does not affect the Hurricane and Emergency Preparedness Equipment Sales Tax holiday already scheduled in May 2015. However, in subsequent years this sales tax holiday will only be held in August.
- The seven-day sales tax holiday for hurricane and emergency preparedness equipment begins at 12:01 a.m. on May 25, 2015 and ends at midnight on May 31, 2015.
- The three-day sales tax holiday for school supplies and clothing, Energy Star and WaterSense qualified products, and hurricane and emergency preparedness equipment begins at 12:01 a.m. on the first Friday in August and ends at midnight on the first Sunday in August.
I am a retailer who does not wish to participate in the sales tax holiday. May I elect not to participate?
No. Retailers must participate in the sales tax holiday on the sale of qualifying items. Retailers may only collect from their customer sales taxes that are legally due. If a dealer fails to allow the exemption, the dealer is in violation of the law. Any dealer collecting the sales or use tax on nontaxable transactions must remit to the Department of Taxation such erroneously or illegally collected tax unless he can show that the tax has been refunded to the purchaser or credited to the purchaser's account.
Where can I find information on the exempt items?
Detailed descriptions and lists of exempt items are provided on the information pages for each sales tax holiday: School Supplies and Clothing; Energy Star Qualified Products; and Hurricane Preparedness Equipment.
Will items rented during the sales tax holiday also qualify for the exemption?
No. Rental items will not be eligible for the exemption, regardless of whether the items are rented out and paid for during the sales tax holiday period.
Absorbing the Tax
What does "absorbing the tax on an item" mean?
When a dealer absorbs the sales tax on an item, this means that he sells a taxable item to a customer without collecting the sales tax, then pays the tax himself. As a general rule, Virginia law does not allow this practice. During the sales tax holidays, however, dealers may absorb the tax on sales of non-exempt items.
I am a dealer who sells both items that qualify for the exemption and items that do not. May I absorb the tax on all items that do not qualify for the exemption during the sales tax holiday?
Yes. During the sales tax holiday, dealers are permitted to absorb the sales tax on all other items sold during the holiday. Even though Virginia law generally does not permit retailers to advertise that they will absorb sales or use tax due, during the sales tax holiday, and the 14 days immediately preceding the start of the sales tax holiday, dealers may advertise that during the sales tax holiday, they plan to absorb the tax on any or all non-qualifying items. The dealer must remit that tax to the Department of Taxation.
I am a retailer who does not sell any qualifying items. Am I required to absorb tax on non-qualifying items?
No. Although retailers who sell qualifying items must participate in the sales tax holiday, the provision that permits dealer absorption is NOT mandatory. Dealers are permitted, but not required, to absorb the sales tax on items that do not qualify for the exemption. They may choose the non-qualifying items, if any, on which they will absorb the tax.
Reporting and Record Keeping
How are the exempt sales to be recorded on the sales and use tax return?
Exempt sales of qualifying items sold during the sales tax holiday period should be recorded on Forms ST-9 and ST-8. Retail dealers who elect to absorb the tax on non-qualifying items must be able to demonstrate that the proper amount of tax has been accrued and remitted.
Taxable and Nontaxable Transactions
How do I treat items that exceed the $20 or $100 cost cap?
When the sales price of an item is greater than the ceiling threshold amount set for the sales price of an exempt item, whether $20 or $100, sales or use tax is due on the entire charge for the item. The sales price is not reduced by the threshold amount.
- Example 1: Customer A wishes to purchase a calculator (school supply) with a sales price of $25. The ceiling threshold amount for exempt school supplies is $20. Therefore, sales or use tax is due on the entire $25. It is not just due on the $5 that exceeds the threshold $20 amount.
- Example 2: Customer B purchases two shirts at $50 each and a pair of shoes at $125. No sales tax is due on either of the two $50 shirts. Sales tax is due on the $125 shoes since the cost of the shoes exceeds the threshold by $25. Sales tax is due on the entire $125 amount. It is not just due on the $25 that exceeds the threshold $100 amount
May I use a rebate to reduce the price of an item so that it will qualify for the sales tax holiday exemption?
No. A rebate occurs after a sale and does not constitute a reduction in sales price. The amount of the rebate is not considered when determining whether an item is eligible for an exemption.
When shipping and handling charges are included in the price of an item, how will sales tax eligibility be determined?
During the sales tax holiday period, shipping and handling charges will not be included in the base price of the underlying item if that item qualifies for the sales tax holiday exemption. Shipping and handling charges will not be used to determine whether an item meets the $20 threshold for school supplies or the $100 threshold for clothing and footwear. Provided the underlying qualifying item meets the required threshold amount, that item will qualify for the sales tax holiday, and the associated shipping and handling charges will also be exempt from taxation.
If an item exceeds the threshold requirements or is otherwise ineligible for exemption during the sales tax holiday, the shipping and handling charges will be included in the base price of the item, and the entire price will be subject to sales tax. This policy will be in effect only for the sales tax holiday period, and the general policy of adding the cost of handling or the combined shipping and handling cost to the base price of an item will remain in effect for the rest of the year.
As a retailer, may I offer two items separately that are generally sold as a unit to meet the cost threshold?
No. Items that are generally sold as a unit, such as a pair of shoes, must continue to be sold as a unit and cannot be priced separately and sold as individual items to obtain an exemption.
If a dealer offers an item for a discounted price or offers a retailer's coupon during the sales tax holiday, which price is used in determining the threshold cost for sales tax holiday eligibility purposes? Manufacturer's coupon?
A discount given by a retailer constitutes a reduction in sales price and the amount of the discount is deducted before determining whether an item is eligible for the exemption. The same is true for both a retailer's coupon and a manufacturer's coupon. A manufacturer's coupon constitutes a reduction in sales price, and will affect the determination as to whether a particular item qualifies for the sales tax holiday exemption. This rule is only in effect for purposes of the sales tax holiday, and does not affect Virginia's normal rule that a manufacturer's coupon does not constitute a reduction in sales price.
If items are offered as sets, containing both exempt and taxable items, will the items be subject to tax during the sales tax holiday?
If items are normally sold together with taxable merchandise as a set or single unit, the full price will be subject to sales tax.