Single Item Caps, Splits and Surcharges
Some jurisdictions have state or local sales taxes that max out, increase, or decrease at a certain price point on a single item of tangible personal property. In Arizona, many city sales taxes decrease above a certain price; in some cases the entire price will be subject to a lower tax, but in some cities a lower tax rate only applies to the portion of the price over the cap. For example, the city of Clifton has a 3% sales tax, but if you sell an item that costs more than $9,999, the portion over that price is only taxed at 2%. But in Benson, the regular tax rate of 3.5% drops to 1% for the entire price of a single item over $5,000.
Many cities in Alaska have similar rate shifts on single items. In Florida, county sales tax is only charged on the first $5,000 of a single item; “single item” includes bulk sales, “a single item that the dealer normally sells in multiple quantities”.
Tennessee has both a single-item surcharge and single-item caps. Tennessee county sales taxes are only charged on the first $1,600 of the price of a single item, but state sales tax actually increases by 2.75% on the portion of the price between $1,600 and $3,200 of a single item. The cap and surcharge apply to sales of tangible personal property only, and not to taxable services.
Other examples that don’t directly impact retailers: In North Dakota, many cities have a cap on sales tax for a single transaction – but the catch is that the customer pays the tax and then applies to the state for a refund. In North Carolina, there is a privilege excise tax on industrial machinery, at the rate of 1% with a cap of $80 per item.
Sales Tax Holidays
Price caps play a big role in sales tax holidays. The most popular tax holidays are for back-to-school shoppers, and include clothing, accessories, computers, and school supplies – often up to a certain price per item.
Approximately 15 states have passed annual sales tax holidays, and another handful of states approve a tax holiday one year at a time. When shipping into a state during a sales tax holiday, you’ll need to comply with that state’s holiday rules, and possibly with non-conforming local jurisdictions.
It is important to note that each state’s holiday will be a little different. For example, “clothing” doesn’t mean the same thing to everybody! Some states include swimsuits and other athletic clothes, and costumes, and accessories such as watches, handbags and jewelry.
“School supplies” may or may not include art supplies, office supplies such as staplers and tape, computer storage devices such as CDs and flash drives, educational (but not gaming) software,
textbooks, or books in general. A sales tax holiday on “computers” may include accessories such as batteries, cables, mice, or keyboards sold separately – but some might only cover these items only when sold in a “package” with a CPU for a single price.
Other sales tax holidays offer tax breaks on energy- or water-efficient products such as EnergyStar-rated appliances, fluorescent and LED light bulbs, energy-efficient windows, and high-efficiency dishwashers, faucets, and toilets.
Severe weather preparedness holidays, particularly in the southeastern US which has suffered hurricane damage in the recent past, offer savings on emergency supplies including generators, chain saws, batteries, two-way radios, coolers and ice packs, first aid kits, and storm shutters. Louisiana, in fact, exempts storm shutters year-round.
There may be different price caps for different products within the same tax holiday. Computers may be exempt up to, say, $750, but clothing and accessories only up to $100. The exemption might be an absolute maximum, where a higher price means the entire price is taxable, or it may be a “split” where only the portion of the price above the cap is taxable. Missouri has a sales tax holiday on school supplies up to $50 in one transaction, rather than a per-item maximum price. Florida’s hurricane preparedness tax holiday has six different price points for different categories of products!
Two states, Louisiana and Massachusetts, have held a two-day sales tax holiday in which ALL merchandise up to $2,500 is exempt from sales tax. Louisiana holds this holiday annually; Massachusetts votes on it every year, often at the very last minute. Louisiana exempts the first $2,500 of the sales price, whereas Massachusetts only exempts products whose price tag is less than $2,500.
Sales tax holidays in Louisiana, Missouri and Alabama apply to the state tax only. Cities, counties and even special districts may elect to provide the tax holiday as well – vastly complicating the question of which local taxes to collect.