Sales tax holidays affected by Wayfair
There’s a new wrinkle in the annual wave of sales tax holidays that arrive in states around the country every summer around the time of back-to-school sales, and that’s the Supreme Court’s decision last year in the case of South Dakota v. Wayfair.
In that much-heralded ruling, the justices allowed South Dakota to impose sales taxes on internet retailers who sell items to consumers out of state, even if the merchant doesn’t have a physical presence, or nexus, in the other state, as long as they have more than 200 transactions or $100,000 in sales there.
“The sales tax landscape has changed quite a bit this year with Wayfair, and that’s going to affect the sales tax holidays as well,” said Sonya Daniels, state and local tax manager at CBIZ MHM. “You’ve got a lot of companies out there that had to register, and a lot of marketplace facilitators that have to handle sales tax on behalf of people that sell on their sites that are having to register. They have to deal with sales tax holidays and back-to-school clothing and all those kinds of things that they probably haven’t had to deal with before, as they didn’t have true physical nexus, as opposed to economic nexus.”
She pointed to the e-commerce site Etsy, which is used by many small craft merchants to sell their goods. “Think about a group like Etsy that makes personalized clothing and other things,” said Daniels. “They only had physical nexus in maybe a couple of states. Now they have to be a marketplace facilitator in the states that have that, so they’re having to deal with all of these exemptions, in addition to registering for the first time in some of these states. It’s probably a huge change for them.”
Besides the Wayfair issue, there has been little change in how the states themselves are dealing with sales tax holidays, according to Daniels, aside from Louisiana and Wisconsin deciding not to participate this year.
“What happens a lot of times with these states that drop out is basically they look at the cost of administering the sales tax holidays as well as looking to see if they saw any economic growth, and what they’re seeing is they lose money,” she said. “There’s not the economic growth that they talk about, and there’s a lot of cost involved. The thought around that is they can have actual tax cuts that affect more than this small segment of society, and do better for their people as a whole then just having these sales tax holidays.”
Other than that, she’s still seeing similar sales tax holidays this year as in previous years on clothing and school supplies. At other times of the year, some states also have sales tax holidays on Energy Star-rated appliances, as Texas does during May, and so-called “Second Amendment holidays” on hunting supplies, firearms and ammunition in Mississippi and Louisiana. Some states, like Alabama in February, also have severe weather preparedness sales tax holidays.
Massachusetts also decided this year to make its sales tax holiday permanent, instead of renewing it from year to year. This year, it will be on Aug. 17-18. “For several years they exempted the sales tax on anything that was $2,500 or less,” said Daniels. “They have been doing it from year to year like other states. They missed a few years and then they came back and they reiterated that they were going to take care of the sales tax holiday last year, and then they went ahead and passed a law so that it would be permanent going forward.”
Daniels has seen little impact this year from the Tax Cuts and Jobs Act, even though its $10,000 limit on state and local income and sales tax deductions will apply. But the public may be growing so used to constant markdowns at struggling retailers that sales tax holidays may make little difference to them.
“I was in my local Walmart, and honestly the aisles weren’t packed like they have been in years past,” said Daniels. “I was a little surprised to see that. “People have gotten used to getting their items. I wonder if it’s Wayfair, with them selling online, if it’s impacted that a little bit. But you didn’t see them lined up at the cashiers like you have in years gone by.”