How to Prepare for the Impact on Your Small Business from the Tax-Free Weekend

tax free tagMany states offer shoppers a tax-free holiday as an incentive once each year. In Massachusetts, the tax-free weekend for 2019 will be August 10-11. Although these weekends encourage more retail activity, they can also create headaches for businesses. Below are some tips to help you prepare for the impact of this upcoming weekend.

  • Understand how sales tax holidays work.
    A sales tax holiday is designed to allow consumers to purchase certain items for a lower price by waiving the associated tax. In most cases, these holidays will be scheduled around the same time as sales on clothing, school supplies and other seasonal necessities. While many items will be exempt from tax during these holidays, some items will not. For this reason, it is important to review state laws carefully. For example, in Massachusetts, meals, motor vehicles, tobacco products and items costing more than $2,500 are not exempt from sales tax during the holiday.

    Keep in mind that Massachusetts requires you to participate in this holiday if you are a retailer selling qualifying items. You cannot use this holiday to make extra money by collecting tax anyway. Any tax you collect accidentally must be turned into the Department of Revenue.
  • Consider local taxes.
    Some local governments impose additional sales tax. If your sales are typically subject to additional tax, check with the local government to determine whether you should continue to collect these taxes on the state sales tax holiday. If you learn that you must continue to collect local tax on purchases made during the holiday, make sure your buyers are aware of this issue upfront.
  • Keep records.
    Even though you won't be collecting state sales tax, you must still keep records of the tax-exempt sales you make during the holiday. You must include these records on the sales tax report you submit to the state. For each tax-exempt item you sell, be sure to record the amount of the sale and the amount of tax that would have been collected if the item had not been tax-exempt.
  • Consider your online sales.
    If you sell items online that qualify for the sales tax holiday, you may still be able to exempt them from sales tax. Be sure to let your online buyers know whether or not their purchases are exempt from tax during this time.

Collecting and remitting sales tax is one of a business's more complicated functions, but the issue becomes even more complex during a sales tax holiday.

Do you have the support you need to manage your small business bookkeeping? Contact us to schedule an appointment to speak with a local small business advisor.