Money Monday: Tax Holiday Shopping

African American Family Buying School Supplies. Father And Son Firstgrader Getting Ready For School . Vector Illustration.

Want to avoid state taxes? Maybe move somewhere where they have state tax holidays? What to know before you go.

It’s that time of the year when some states provide sales tax holidays for those shopping for clothes and other related school supplies, but beware, sales tax relief can be tricky.  For one thing, you may be attracted to a low state sales tax, but not realize that you still have to juggle county or local taxes, in addition. Some people relocate because a state may not have any, or has a very low income tax rate. In exchange for the low income tax percentage, however, they may encounter very high property income tax rates, for example.

That said, I think the most important question as it relates to sales tax is: what items are exempted from sales tax?

Let’s take a look:

Income Tax

With regards to sales tax the analysis in general must begin with whether or not the state has income tax. If your state does not collect income tax, then look for an offset in the sales and property tax rates. States with no income tax include Tennessee and Washington State. One of the problems here is that in some instances, everything comes with a sales tax. This would include essential items such as food and prescription drugs. It’s one thing to have a sales tax holiday on computers and non-essential items, but how meaningful is a sales tax holiday, for fifteen days each year, when you are taxed on essentials the remainder of the year? If you are considering purchasing big ticket items from another jurisdiction, the income tax analysis should be a determinative factor.

Sales Tax Composition

In general, sales tax is a combination of both the state and local jurisdiction taxing rates. For example in Louisiana, the state with the highest sales tax in the country, the state tax is 4.45% while the local sales tax can average 5.10%; thereby producing an average sales tax of 9.55%. This can lead to all types of sales tax rate inequities or applications depending on your shopping forum.

In Washington State, the state tax rate itself may be 2.36% but local towns and counties can add up to a 4.1% sales tax rate on top of the state sales tax rate. Therefore, while sales tax holidays are wonderful, the reality is that more school supplies and the things needed are probably purchased outside the tax holiday season, and therefore it would be wise to not only consider the state sales tax rate but also the local town or county in which you purchase items.

Sales Tax Holidays

There may be only a few states with sales tax holidays remaining. These include New Jersey, whose holidays are from August 26 through September 4th and apply to computer sales of  $3,000 or less. Also exempted are school and art supplies and instructional materials. Connecticut is another state whose sales tax holiday begins on August 20 and ends on August 26. The tax break only covers clothing or footwear of $100 dollars or less. I’m not sure how much value there is with these low thresholds, given the current trends and the price of some Air Jordans.

WHAT’S UP!

Today’s What’s Up is about security steps you can take against or to reduce scams. Use safe payment methods. Credit cards will provide safer legal protections not found through other means of payments. Gifts cards, wire transfers and crypto offer impossible means of retrieving your money if scammed. Also, Venmo and Zelle would not do much for you if you are scammed out of your money. If you must use peer to peer like Cash App when making payments, it’s best to do it with people you know. And that’s what’s up!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2023. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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