A recently enacted statute provides for a Massachusetts “sales tax holiday weekend,” i.e., two consecutive days during which most purchases made by individuals for personal use will not be subject to Massachusetts sales or use taxes. St. 2011, c. 86 (“the Act”). The Act provides that the sales tax holiday will occur on August 13 and 14, 2011and on those days, non-business sales at retail of single items of tangible personal property costing $2,500 or less are exempt from sales and use taxes, subject to certain exclusions. The following do not qualify for the sales tax holiday exemption and remain subject to tax: all motor vehicles, motorboats, meals, telecommunications services, gas, steam, electricity, tobacco products and any single item whose price is in excess of $2,500. The Act charges the Commissioner of Revenue with issuing instructions or forms and rules and regulations necessary to carry out the purposes of the Act.
II. Purchases Qualifying for the Exemption
The exemption applies to sales of tangible personal property bought for personal use only. Purchases by corporations or other businesses and purchases by individuals for business use remain taxable. Purchases exempt from the sales tax under G.L. c. 64H are also exempt from use tax under G.L. c. 64I. Therefore, eligible items of tangible personal property purchased on the Massachusetts sales tax holiday from out-of-state retailers for use in Massachusetts are exempt from the Massachusetts use tax.
III. Specific Rules
The following rules are to be applied by retailers in administering the Massachusetts sales tax holiday exemption:
A. Non-Exempt Sales. All sales of motor vehicles, motorboats, meals, telecommunications services, gas, steam, electricity, tobacco products and of any single item whose price is in excess of $2,500, do not qualify for the sales tax holiday exemption and remain subject to tax.
B. Threshold. When the sales price of any single item is greater than $2,500, sales or use tax is due on the entire price charged for the item. The sales price is not reduced by the threshold amount. For example, if an item is sold for $3,000, the entire sales price of the item is taxable, not just the amount that exceeds $2,500.
Exception: Under G.L. c. 64H, § 6(k) there is no sales tax on any article of clothing unless the sales price exceeds $175; in that case, only the increment over $175 is subject to tax. If, on the sales tax holiday, the price of an article of clothing exceeds the threshold, the first $175 may be deducted from the amount subject to tax. The $2,500 threshold amount is not increased by $175.
Examples: 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).
C. Multiple Items on One Invoice. Where a customer is purchasing multiple items on the sales tax holiday, separate invoices do not need to be prepared. As long as each individual item is $2500 or less, there is no upper limit on the tax-free amount each customer may purchase.
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.
D. Bundled Transactions. When several items are offered for sale at a single price, the entire package is exempt if the sales price of the package is $2,500 or less. For example, a computer package including a CPU, keyboard, monitor, mouse, and printer with a single sales price of $3,500 would not qualify for the sales tax holiday exemption because the single sales price of the package ($3,500) is more than the sales tax holiday threshold amount of $2,500.
Items that are priced separately and are to be sold as separate articles will qualify for the sales tax holiday exemption if the price of each article is $2,500 or less. For example, a customer purchases a personal computer for $3,000, and a computer printer for $200, each of which is priced separately. The purchase of the personal computer will not qualify for the exemption because the sales price ($3,000) is in excess of the sales tax holiday threshold amount of $2,500. However, since the sales price of the computer printer ($200) is less than $2,500, the printer would be exempt from tax.
E. Coupons and Discounts. If a store coupon or discount provided by a retailer or manufacturer reduces the sales price of the property, the discounted sales price determines whether the sales price is within the sales tax holiday price threshold of $2,500 or less. If a store coupon or discount applies to the total amount paid by a purchaser rather than to the sales price of a particular item and the purchaser has purchased both eligible property and taxable property, the seller should allocate the discount on a pro rata basis to each article sold.
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 $140 is due on the sales price of the sofa, $2,800 ($3,500 – $700), as even its discounted price exceeds the $2,500 threshold.
F. Exchanges. Consistent with the Department’s usual practice, if a customer purchases an item of eligible property during the sales tax holiday, but later exchanges the item for an identical or similar eligible item, for the same price (“an even exchange”), no tax is due even if the exchange is made after the sales tax holiday, see LR 03-8.
G. Layaway Sales. A layaway sale is a transaction in which property is set aside for future delivery to a customer who makes a deposit, agrees to pay the balance of the purchase price over a period of time and receives the property when the last payment is made. 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 on August 13 and 14, 2011.
H. Special Order Items; Transfer of Possession after Sales Tax Holiday. Special order items such as furniture are eligible for the sales tax holiday so long as they are ordered and paid in full on the sales tax holiday weekend, and the cost of each item is $2,500 or less, even if delivery is made at a later date. Generally, a customer pays for an item when the seller receives cash, a credit card number, a debit authorization, a check, or a money order or the buyer and seller enter into financing arrangements with a third party, including an affiliated entity (but excluding seller financing where the seller extends credit to the customer). A prior special order purchase with a deposit paidbefore August 13, 2011 will not qualify for the holiday, even if the retail customer pays the entire remaining balance due on August 13 or 14, 2011.
I. Rain checks. When a customer receives a rain check because an item on sale was not available, property bought with the use of the rain check will qualify for the exemption regardless of when the rain check was issued if the rain check is used on the sales tax holiday weekend. Issuance of a rain check during the sales tax holiday weekend will not qualify otherwise eligible property for the sales tax holiday exemption if the property is actually purchased after the sales tax holiday.
J. Rentals. Generally, rentals for thirty days or less of tangible personal property other than motor vehicles and motorboats are eligible for the sales tax holiday, even if the rental period covers days before or after the holiday, providing payment in full is made during the sales tax holiday weekend. The sales tax holiday does not apply to rentals or leases of tangible personal property of any type if the term of the rental or lease contract is longer than thirty days.
K. Rebates. A rebate is a refund of an amount of money by the manufacturer of a product to the retail purchaser of the product. If a vendor sells tangible personal property to a customer who applies a manufacturer’s rebate to reduce the sales price at the time of the sale, the rebate is generally treated as a cash discount and is excluded from the sales price. The discounted sales price determines whether the sales price is within the sales tax holiday price threshold of $2,500 or less.
If a vendor sells tangible personal property to a customer who will receive a rebate after the sale (e.g., by mailing a coupon to the manufacturer), the full purchase price of the property determines whether the sales price is within the sales tax holiday price threshold of $2,500 or less, and tax must be charged on the full purchase price if it is over $2,500.
If a vendor offers a customer a cash discount upon the purchase of tangible personal property and the customer also receives a rebate from the manufacturer of the property after the sale, only the cash discount given by the retailer is excluded from the sales price for purposes of the sales tax holiday exemption. The amount of the manufacturer’s rebate is not deducted from the sales price.
L. Internet Sales. If a customer orders an item of eligible property over the Internet, the item is exempt if it is ordered and paid for onAugust 13 or 14, 2011 Eastern Daylight Time. Generally, a customer pays for an item when the seller receives a credit card number, a debit authorization, a check, or a money order. The actual delivery can occur after the holiday period. For 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) onAugust 13 or 14, 2011; the computer has a delivery date of September 20, 2011. The sale is exempt since the computer was ordered and paid for during the sales tax holiday.
M. Splitting of Items Normally Sold Together. Articles normally sold as a single unit must continue to be sold in that manner. Such articles cannot be priced separately and sold as individual items in order to obtain the sales tax holiday exemption.
N. Returns. Generally, sales tax may only be refunded to a retail customer on returns within 90 days of the sale. G.L. c. 64H, § 1. For the 90 day period following August 13 or 14, 2011, when a customer returns an item that could have qualified for the sales tax holiday exemption, the vendor may not credit or refund sales tax to the retail customer unless (1) the customer provides a receipt or invoice that shows the tax was paid or (2) the seller’s records show that tax was paid. Sellers may set their own return policies. This requirement is not intended to change or extend a seller’s return policy.
O. Erroneously Collected Taxes. Customers who were erroneously charged sales tax by a vendor for an exempt purchase should take their tax paid receipt to the vendor to obtain the refund. If the vendor has previously remitted the erroneously collected tax to the Department, the vendor may file an application for abatement of the erroneously collected tax within 3 years upon satisfactory evidence that the vendor has credited or refunded the tax to the purchaser.
IV. Responsibilities of Retailers
A. Participation. All Massachusetts businesses normally making taxable sales of tangible personal property that are open on August 13 or 14, 2011must participate in this sales tax holiday.
B. Erroneous Collection. Any sales or use tax erroneously or improperly collected by a retailer on August 13 or 14, 2011 must be remitted to the Department of Revenue.
C. Certification of Nonbusiness Use by the Purchaser. Normal business records showing the date of sale, item(s) purchased, and selling price must be kept by the retailer/ vendor. However, a separate certification from the purchaser on transactions of $1,000 or more will not be required for the 2011 Sales Tax Holiday. The requirement that purchases under the Sales Tax Holiday be for nonbusiness use is unchanged and purchasers paying for tangible personal property with business credit cards or checks must be charged tax on the items purchased.
D. Out-of-State Retailers. Out-of-state retailers registered to collect Massachusetts sales and use taxes must participate in this sales tax holiday. Such retailers should not collect sales/use tax for items ordered and paid for onAugust 13 or 14, 2011 in accordance with the rules of this technical information release. The retailers must keep records sufficient to verify the date of sale, item(s) purchased, and selling price.
E. Penalties. Retailers that back-date sales occurring after August 14, 2011 or that forward-date sales that occurred beforeAugust 13, 2011 in order to make them appear to qualify for the sales tax holiday or otherwise fail to follow the rules in the TIR in order to improperly avoid collecting and remitting sales or use tax may be subject to the tax evasion penalties of G.L. c. 62C, § 73, including a felony conviction, a fine of not more than $100,000 or $500,000 in the case of a corporation, or by imprisonment for not more than five years, or both, and may also be required to pay the costs of prosecution.