Your Money Monday: The Tax-Free Test
(WGGB) — For the ninth time in ten years, shoppers in Massachusetts are set to have a tax-free weekend this coming Saturday and Sunday.
On August 10 and 11, most purchases of single items $2,500 and less are exempt from the state’s 6.25 percent sales tax.
The Retailers Association of Massachusetts predicts sales will top $500 million during the holiday, well above the $100 million in sales more typical of an early August weekend.
The weekend is also one way for businesses to remain competitive.
The sales tax in Connecticut is 6.35 percent, and in New York state, it’s four percent.
To businesses in along the north shore and northeastern tip part of the state, there’s a huge impact as New Hampshire doesn’t have a sales tax.
“For states, like Massachusetts which also competes with states like New Hampshire, which has no sales tax, they’re facing border wars up there with retail sales. People will leave Massachusetts and go to New Hampshire and purchase things. We know, for at least this weekend, on the north coast of Massachusetts, all bets are off and they can stay in Massachusetts and buy,” says State Sen. Michael Knapik.
The weekend isn’t only good for businesses, but it can be good for employees as well.
“It’s especially good for retail workers. Retail workers have already been logging in extra hours and will continue to over the weekend. It’s worth the morale boost. for nothing else, it’s worth it for that. and it’s definitely worth it for the workers who have been very happy for all the extra hours they’ve been getting, so yes, it is worth it,” adds AIC Economics Professor Simar Reine.
So how much are you saving by going tax-free? Let’s say you’re looking to buy some new items for your living room.
The sofa you like runs $1,199. The entertainment center $624, and a new or used bookcase $462.
When all is said and done, you will save over $142 by going tax free.
How about some new appliances for your kitchen?
Let’s say the new refrigerator you like is $1,300 and a new stove about $625. Add in a replacement for your dishwasher is $449.
By purchasing those appliances on the tax-free holiday, you save over $148.
One of the dangers of a tax-free weekend is the temptation to overbuy.
Remember, the small savings you get not paying the sales tax can be quickly wiped out by anything extra you would buy.
“I would say if you weren’t planning on spending it, don’t spend it. Don’t spend to spend. But if you can improve your quality of life or if you can buy something or you know you will be buying something in the next few months, you’re better buying it now than just a month or two from now and missing on this tax free weekend,” Reine notes.
The tax-free weekend comes at a time of year that really one of, if not the slowest times for retailers, but it comes at a price to the state.
Last year, Massachusetts lost over $23 million in tax revenue due to the sales tax holiday.
So how does the state make up for the loss? The money will come from settlements or judgments that otherwise would go into the state’s rainy day fund.
For complete information from the state, including returns, exchanges, and what to do if you think you were incorrectly charged tax, click HERE
WHAT IS INCLUDED
- Single items of tangible property costing $2,500 or less
- Items must be bought by individuals for personal use
- Alcohol is included and exempt from the tax
WHAT IS NOT INCLUDED
- Cars, Boats, Meals, Gas, Tobacco, and any item with a price over $2,500
- Purchases made by corporations or other businesses for business use
- Purchases made by individuals for business use
- Certain computer and software services taxes that took effect on July 31, 2013
Existing state law applies no tax on clothing unless the price exceeds $175. If, on the sales tax holiday weekend, the sales price exceeds $175, tax will be based on the price of the item minus $175.
The state provides this example
- A customer buys a suit on the sales tax holiday for $600. No tax is due.
- A customer buys a wedding dress on the sales tax holiday for $2,550. Tax is due on $2,375 ($2,550 – $175).
MULTIPLE ITEMS ON ONE TRANSACTION
The tax-free holiday applies to single items. Because of this, you will not be taxed if you buy several items the transaction exceeds $2,500, so long as none of the individual items are over $2,500.
The state offers this example:
“A customer purchases a television, a stereo receiver, and a computer. The three separate items costing $1,500, $1,200 and $2,000 can be rung up together, all tax free.”
If several items are ‘bundled’ together and offered for one price, the package is exempt as long as the price is $2,500 or less.
For example: A computer package, including the computer and a printer, with a price of $3,500 will not qualify for the holiday exemption.
Note: If items are priced separately and are sold as seperate items, they would qualify so long as each piece is $2,500 or less
For example: A computer buys a computer for $3,000 and a printer for $200. The computer would not be tax-free because it’s over $2,500, but the printer would be tax-free.
Special Orders (i.e. furniture) will be eligible for the holiday as long as the item is ordered and paid in full on the weekend, and the cost of each item is $2,500 or less, even if delivery is made at a later date.
- Note: A special order with a deposit made before August 11 will NOT qualify for the holiday, even if the remaining balance is due or paid on August 11 or 12.
- If a rain check for an item has been issued, and the item is purchased DURING the weekend, it will be exempt of sales tax.
- If a rain check is issued during the weekend and the item is purchased AFTER the weekend, it will NOT be qualify for the sales tax exemption.
Layaway sales do not qualify for the sales tax holiday, even if the last required payment (or payments necessary to complete the transaction) are made this weekend
- If a coupon is available for an item, the discounted sales price will determine if it falls into the ‘sales tax holiday’ threshold of $2,500 or less.
- If a coupon applies to the total amount paid (i.e. % off entire purchase), the seller should apply the discount on a pro rata basis to each article in the transaction, to determine if any of the items would be taxed.
- The state offers this example:
“A furniture store customer has a coupon for 20% off her entire bill. She purchases a dining room table for $1,800, and a sofa for $3,500. The total discount available is $1,060 ($5,300 x .20), of which $360 is attributable to the table ($1,800 x .20), and $700 is attributable to the sofa ($3,500 x .20). No tax is due on the sale of the table. Tax of $175 is due on the sales price of the sofa, $2,800 ($3,500 – $700), as even its discounted price exceeds the $2,500 threshold.”
If someone places an order over the internet, it is exempt if it is ordered and paid for on either August 11 or August 12, during Eastern Daylight Time, even if delivery is scheduled at a later date.
The state offers this example:
“A customer orders a computer over the Internet with a sales price of $2,000 and charges the sale to his credit card at 1:00 p.m. (EDT) on August 11 or 12, 2012. The computer has a delivery date of September 20, 2012. The sale is exempt since the computer was ordered and paid for during the sales tax holiday. ”