Sales Tax Holidays

Sales tax holidays (also referred to as tax-free weekends) can be a boon for consumers, who essentially see them as 4-7% discounts on products like back-to-school supplies or emergency preparedness items. 

However, these short tax-free periods can be a confusing disruption for retailers. This is especially true for e-commerce sellers with sales tax nexus in multiple states and have to deal with sales tax holidays state by state.

What Are Sales Tax Holidays?

Sales tax holidays, sometimes called “tax-free weekends,” are short periods when shoppers can go to stores and buy certain eligible items tax-free. In some states, items are only free from state tax, and shoppers still have to pay the local sales tax rate. (Read more about how sales tax rates work here.)

In the US, states set their own sales tax rules and laws. Many states use tax-free weekends to incentivize shoppers to shop, often for necessities.

Other states use sales tax holidays to incentivize shoppers to stay in-state (or even to lure shoppers from other states.) For example, Massachusetts often offers tax free weekends at key times to keep shoppers in-state rather than crossing the border into New Hampshire, a state with no sales tax year-round.

Politicians often see short breaks from paying sales tax as politically expedient, popular, and a way to stimulate the economy. 

But for retailers, especially e-commerce sellers, sales tax holidays can be difficult, unpopular and a surefire way to develop a headache.

Sales Tax Holidays by State

Several states offer sales tax holidays for the back-to-school season and for weather preparedness. The table below shows which states offer sales tax holidays for 2024 and what items may apply.

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What E-Commerce Sellers Need to Know about Sales Tax Holidays

The trouble with sales tax holidays for e-commerce sales is that you need to be able to turn off sales tax collection on certain items when shipping to individual states over a limited time period. 

If you don’t manage to turn off sales tax collection on items that are subject to the holiday, your customers may complain, or worse, turn to a competitor who does support the sales tax holiday. 

However, actually supporting the sales tax holiday is difficult for e-commerce sellers, too. 

You’re required to know each state’s special sales tax rules. 

• Does a state even have a sales tax holiday? Generally, around 20 states have at least one sales tax holiday each year. Some states have the same holiday(s) every year, while other states are required to approve a new tax-free holiday each year and sometimes do not hold one. Some states also approve sales tax holidays at the last minute.
• Is a sales tax holiday only on state sales tax? If the holiday only excludes state tax, this means you’re still required to collect local sales tax (city, county, etc.) from your buyer. Worse, some states allow local areas to opt in or out of a sales tax holiday. This might mean you need to collect one county’s sales tax but not the county sales tax rate in the county just next door.
• What dates do the sales tax holidays cover? Each state’s schedule is different. Even “back to school” sales tax holidays, though they happen in the fall, can vary by date and length. 
• What specific items does the sales tax holiday include? One state might include computers in a “Back to School” sales tax holiday, while other states only include clothing and footwear. And many states are vague about which specific items count as “school supplies.” 
• Are you required to honor the holiday? Some states require retailers, even out-of-state e-commerce retailers, to honor the sales tax holiday, while others allow you to opt out. This decision is up to you. Honoring the holiday might lead to more sales, but opting out would be much easier administratively.

How to Handle Sales Tax Holidays

Here are a few tips on handling sales tax holidays as an e-commerce seller or business owner.

Turn off sales tax collection item-by-item.

If your sales tax engine allows it, you can go in manually and turn off sales tax collection on each item that is subject to the sales tax holiday.

The downside here is that this is a tedious manual process, especially if your store sells a large catalog of items. You also need to remember to turn sales tax collection back on after the holiday is over. This may also mean you need to take care of edge cases, such as sales you made overnight after the sales tax holiday officially ended. 

Unfortunately, most sales tax collection engines do not allow for this level of granularity, so this simply isn’t an option.

Turn off all state sales tax collection over the holiday and pay sales tax out of pocket.

You can also just turn off sales tax collection completely for a state over the holiday weekend and then pay any uncollected sales tax out of pocket. 

This is an option if you wish to honor the tax-free weekend but have no way to turn off sales tax collection for individual items. However, this will mean you’ll need to determine how much sales tax you should have collected on items you sold that were not subject to the sales tax holiday. 

Again, this is a tedious, manual process. And if you get this wrong, you can be subject to interest and penalties from the state.

Do not participate in the sales tax holiday.

Sales tax holidays are mandatory in some states (such as South Carolina), but other states allow retailers to opt in or out. The good news is that most state taxing authorities are generally not going to penalize you for collecting sales tax. After all, they want tax money to pay for budget items like schools and hospitals! 

The worst case scenario here if you are allowed to opt out of the sales tax holiday, is that you lose sales over the holiday because customers choose to shop with competitors who are honoring the sales tax holiday. However, in a slim-margin business like e-commerce, losing a weekend’s sales to competitors can be a heavy blow to the bottomline, so that business decision is up to you.

Sales Tax Holidays: Conclusion

Each state has the right to declare a sales tax holiday, whether for hurricane preparedness items or back-to-school items. Regardless of the case, businesses in most states are required to participate. The best way to ensure you handle sales tax right is by working with an automated sales tax solution like Zamp.

State Sales Tax Holiday: FAQ

About the author

The Zamp Team

The Zamp Team consists of experienced writers and editors who are dedicated to researching sales tax topics to help readers make smart decisions about their business and sales tax compliance. Collectively, the team has over 200 years of sales tax experience.