By Scott Peterson
The back-to-school sales tax holiday season is winding down, but another sales tax holiday is on the way, so if you weren’t able to take advantage of this last holiday – or don’t think you received the maximum benefit from it – read on.
In 2017, 25 states will offer a tax holiday of some kind in 2017 (https://www.taxadmin.org/sales-tax-holidays). Originally designed as a form of tax cut to benefit low-income consumers and boost business activity, a sales tax holiday is a limited time each year during which specified goods, such as back-to-school supplies, hurricane preparedness supplies, or Energy Star-labeled products, are exempt from state, and sometimes local, sales taxes.
Today, the commitment to continuing to offer these holidays is waning as states wonder about their effectiveness. Some research, such as from the Tax Foundation report, and research “and validated by Avalara’s own customer data sets, indicates that sales tax holidays encourage customers to shift spending, not increase it. Still, as long as sales tax holidays are offered, many businesses want to take advantage of them because they are good for their brand and bring in new customers.
If you choose to participate in a sales tax holiday, it’s important to make the most of it and not create unnecessary headaches. With that in mind, here are the top three ways you can prepare for your next sales tax holiday.
1. Train staff early
Sales tax holidays can be a double-edged sword for a small business. On the positive side, sales can increase significantly. On the negative side, complying with the sales tax holiday rules can be time-consuming and complicated, and even a small compliance hiccup can lead to audits, fines or other penalties. Sellers must keep track of which states have sales tax holidays, which items are exempt, and how long the holiday lasts. They must also be accurate and consistent in how they charge customers.
The solution to this is to invest in some early preparations. If your staff has not been through a rush period, prepare them as you would for the Christmas season. Your floor staff and cashiers will need to be able to answer customer questions about what items are tax-exempt and how long the holiday will last. Train them as early as possible on the regulations, timing, and qualifying store items. If your register system is automated, it may still be a good idea to ensure cashiers know how to manually not charge sales tax on a particular item. You may also want to prepare some “cheat sheets” that staff can turn to if they have questions. Remind your staff that this preparation is about more than just tax compliance. It’s about making sure customers have a great experience when they are in your store.
2. Offer additional incentives
The sales tax holiday by itself is a big customer draw, but you can make the event even more successful by offering additional discounts. Some states may not allow you to advertise additional discounts for a tax-free item, so it’s essential to check the current regulations. But you can always run a sale on related items – adult clothes for a back-to-school holiday, rainboots and umbrellas for an emergency preparedness holiday, etc. Customers may come for the holiday-specific items, but they will likely walk out with other items as well. You can also provide shoppers with coupons to encourage them to make return visits.
3. Rely on automation
For smaller retailers and businesses, setting up processes to ensure compliance with the complex sales tax holiday requirements may be the real stumbling block. Today, however, just like the technology advances that make merchandising and selling affordable and easy (e.g. e-commerce platforms and marketplaces, omni-channel fulfillment options, payment solutions, shipping services, etc.) sales tax automation services can automatically determine the appropriate sales tax rate for each item you sell across your various locations – including during a sales tax holiday. These services rely on constantly updated data from the most reliable sources, so your staff can focus on what you do best – connecting with your community and providing them with the goods they need.
Tax-free holidays save customers money, but they also give businesses the chance to increase sales and impress new customers. With a bit of planning and some automation, you can turn each sales tax holiday into a financial success and create loyal, long-term customers.
Scott Petersen is the Vice President, U.S. Tax Policy and Government Relations, Avalara.