Scott Peterson is the Vice President of U.S. Tax Policy and Government Relations for Avalara, Inc. Automate today. The federal government does not administer sales tax; rather it is determined by state and local governments. States that do not consider clothing sales taxable include Alaska, Delaware, Montana, New Hampshire and Oregon (which do not have sales taxes at all). Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice. As with any sales tax issue, the first step to getting your sales taxes right is knowing your nexus. One example of the many sales tax exemptions offered by states is an exemption for clothing.
Protective gear is considered taxable in Minnesota, New Jersey, Rhode Island and Vermont. This can make knowing where and how much sales tax to charge as a clothing seller pretty confusing. Finally, items sold by charities or other exempt organizations are generally also exempt from the sales tax. | Scott Peterson. Likewise, in many cases, where parts are purchased for manufacturing to be made into one larger item, these parts are often exempt from sales tax, although the ultimate good that they create is not. However, small sellers also may have less time and resources to invest in the research it requires to get sales taxes on clothing right, given all the different rules and exceptions and how often they can change. You are obligated to collect taxes in the state where you have nexus, so those are the states where you need to be aware of all the sales tax rules for clothing. Many states offer tax-free shopping for clothing and other items for back to school or major holidays, for example. Real property, such as land, is not subject to the sales tax, nor are large bulk sales such as the sale of an entire business or operation. If you're planning to buy a new wardrobe, you could save some money by traveling to a clothing tax-exempt state to make your purchases. In Connecticut, meanwhile, apparel priced under $50 is exempt, while apparel that costs $1,000 is subject to a luxury tax. California currently has the highest state sales tax in the country, at 7.5 percent. One way for small businesses to deal with the challenges of apparel sales tax is automation.
Offer ends September 30: Zero payments for 90 days plus a 15% bundle discount. Avalara Returns for Small Business simplifies the sales tax returns process, from preparation and filing to remittance. Tax bulletins (TB) Opinions of Counsel; Regulations and regulatory actions ; New York State tax law ; Recent additions ; NYS Division of Tax Appeals ; IRS publications ; Sales tax rates - clothing and footwear. Before joining Streamline Scott spent ten years as the Director of the South Dakota Sales Tax Division where he was responsible for the state sales and use tax, the state’s contractor’s excise tax, the sales and use tax for over two hundred cities, and the sales and use tax for four tribal governments. Not all goods and services are taxed by sales taxes. Currently forty-five states have a sales tax. Although customers pay sales tax, it is collected by the businesses that sell the goods, and they must report the tax to the Internal Revenue Service. Other states that exempt clothing from sales taxes (with exceptions from the exemption) include Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, Rhode Island and Vermont. Sales tax holidays—specific periods of time when states exempt certain items from sales tax —can throw a wrench into clothing sales taxes as well. This means that those who buy and re-sell typically are not required to pay sales tax on their initial purchase, as the tax will be paid by the consumer who ultimately buys the good. Then some states, like Connecticut, take sales tax on clothing a step farther and even pose a luxury tax on clothing and footwear price at more than $1000. In his role, Scott leads Avalara’s effort to be the first name in sales tax automation. Sales tax holidays—specific periods of time when states exempt certain items from sales tax —can throw a wrench into clothing sales taxes as well. If you do get your sales tax rates wrong, on the one hand, you could face the risk of penalties, fines and audits if you undercollect, and on the other hand, customers will be understandably unhappy with your service if you overcollect.