Since many states are having their first tax-free period (for hurricane preparedness) this weekend, I thought it would be helpful if someone did a recap of all the tax sales across the nation (I’m unaware of a similar list for 2008 existing anywhere), so I did searches of all the states and collected the information on any sales tax holidays they are having. Many states have scaled back the tax-free program because of projected tax revenue shortfalls (Florida canceled its spring tax sale for hurricane preparedness supplies and shortened its typically ten day school supply tax-free period to seven days) but many still have some sort of program in place.

What started as a tax holiday on clothing and shoes has now spread to multiple tax sales for some states. Some have a spring-time hurricane preparedness tax-free period, some have added an energy efficiency related tax-free period for the fall, and some have all three. Below is as comprehensive a list as I could manage and I hope you find it useful. If a state doesn’t appear, I believe it doesn’t have a sales tax holiday or it’s Alaska, Delaware, Montana, New Hampshire or Oregon and they don’t have a sales tax.

The state names link to the state’s Department of Revenue or some other resource that will fully explain every last painful detail of the tax holiday in that state, such as exceptions to the tax holiday.

• Alabama - August 1st - 3rd, covers clothing <$100 per item, computers/software/computer supplies <$750, school supplies <$50 per item, books <$30 per item.
• Connecticut - August 17th - 23rd, clothing and footwear <$300.
• Florida - August 2nd - 8th, clothing, shoes and backpacks <$50 each, school supplies <$10 each. Looks like there will be no sales tax holidays in Florida (Thanks Aileen!) this year. The spring-time hurricane preparedness tax-free period was canceled for 2008 and the usual 10 day tax-free period for school supplies was scaled back to only 7 zero days.
• Georgia - July 31st - August 3rd, clothing <$100, computer/equipment < $1500, school supplies <$20, energy efficient appliances <$1500; there is also debate over an energy efficient related tax sale in early October.
• Iowa - August 1st - 2nd, clothing/footwear <$100 per item.
• Louisiana - May 24th - 25th, hurricane preparedness sale exempting purchases up to $1,500 for emergency items.
• Massachusetts - Has not yet established the dates of the sales tax holiday but is usually the second weekend in August, covers anything with a sale price <$2,500 with some exceptions.
• Missouri - August 1st - 2nd, clothing <$100 each, school supplies <$50 each, computer/equipment <$3500
• New Mexico - No announcement but usually first weekend in August, clothing/footwear <$100 each, school supplies <$15 each, computers <$1000 and computer equipment <$500.
• North Carolina - August 1st - 3rd, covers clothing <$100 per item, school instructional materials <$300 per item, sports & rec equipment <$50 per item, computers/software/computer supplies <$250 per item.
• Oklahoma - No announcement yet but usually a weekend in August, covers clothing/footwear <$100 each.
• Tennessee - April 25th - 27th - Clothing <$100 per item, School and Art Supplies <$100 per item, and Computers <$1500 per bundled package
• Texas - August 15th - 17th, clothing/footwear <$100, backpacks <$100; May 24 – 26 - Energy Star tax holiday, eligible items listed on website (thanks Sarah!).
• Virginia - There are three holidays for 2008 in May, August, and October. May 25th - 31st, designated hurricane preparedness equiment priced <$60 per item and portable generators priced <$1,000 per item. August 1st - 3rd, back-to-school sales tax holiday on school supplies <$20 per item and clothing & footwear <$100 per item. Finally, October 10th - 13th, energy savings sales tax holiday on Energy Star Qualified products including appliances purchased for noncommercial home or personal use <$2,500 each.
• Washington D.C. - No official announcement but it’s usually a week in August and a week in November, clothing/accessories/shoes <$100 and school supplies <$100.

If I missed a state, please let me know and I’ll add them. I thought it was funny that Maryland’s first sales tax holiday wouldn’t be until 2010… I’m not buying any clothes or shoes until then!

(photo by pulpolux)

In the discussions on Huckabee’s support of the Fair Tax, the idea of a value added tax (VAT), a type of consumption tax, was raised. Having little experience with it myself, I thought it would be valuable to turn to someone who actually did - Plonkee. As a resident of the UK, Plonkee has more first hand knowledge of the VAT so I asked her to describe it for us. This is not to say that the UK’s version of a VAT is how every VAT is, but seeing as how our cultures are basically siblings, it’s not a bad thing to understand.p

What is VAT?

In the UK, as in almost all of rest of the European Union, we have both an income tax, and a consumption tax - in the form of VAT. Like most taxes over in the UK, they are levied by central government and are used to fund both central and local government functions and services.

VAT is a “tax on the final consumption of certain goods and services”. From the point of view of the consumer, it is a lot like a sales tax - charged on the end value of the product. However, from the point of view of businesses, it is slightly different. Everyone only pays net VAT on the value that they have added to the goods and services. They do this by charging the consumer (which may be a member of the public, or another business) the full price of VAT, and claiming back the VAT on the supplies that they bought to make up the product or service.

Example of how VAT works

I buy £40 of raw supplies, I am charged £7 by the supplier in VAT, for a total of £47.

The supplier pays the £7 to the government.

I make a table with the supplies, and sell it to a customer for £100. I charge them £17.50 in VAT, for a total of £117.50

I pay the £17.50 to the government, and claim back the £7, leaving me with net VAT payable of £10.50

This difference between a sales tax and VAT means that you have to pay VAT regardless of whether you are the end user of the supplies, product or service or not. This means that it is in some respects harder to defraud, but also that there are greater administrative costs.

Information specific to the UK

Most goods and services in the UK have VAT charged at 17.5%, but there are three other rates, reduced rate (5%) and zero rate (0%) and exempt rate (no VAT charged) - there are technical differences between zero rated and exempt rated, but for most purposes they are identical.

In the UK, many essential items are either zero-rated or exempt from VAT - these include non-luxury food and drink, books, drugs, transport, buying most property, renting a home, medical care, postal services, financial products and many financial services, and clothing for children. Others are charged at the reduced rate, such as domestic fuel and tampons.

In addition, for many purposes charities do not have to pay VAT, nor do government departments (since VAT is an indirect tax, in practice I think they pay VAT via their suppliers and claim it back from the government).

As VAT is charged on in-country consumption of goods (technically, inside the EU) people exporting goods, either privately or in business, can claim back the cost of VAT paid. This means that foreign tourists may be able to claim back VAT from participating retailers - this voluntary scheme is usually only available on larger purchases (over £50-£100).

Attitudes towards VAT

Prices for most consumer goods are displayed with VAT incorporated into the price. This is especially true for smaller valued items. When Jim asked me if I’d write this post, I did ask around my friends to see if anyone had any opinions on VAT. No one seemed to care either way.

Consumer taxes that are more contentious are the so-called “sin taxes”, fuel duty and alcohol and tobacco duties. Fuel duty means that the price for petrol [gasoline] is currently running at $7 a gallon or more. The price of a bottle of wine in the supermarket starts at the equivalent of around $5-$6. These are reasonably unpopular predominantly because they are much higher than in other European countries; most Brits traveling abroad for their annual summer holiday [vacation].

Jaffa Cakes

I mentioned earlier that VAT is not charged on non-luxury food. Both cakes and biscuits [cookies] are deemed non-luxury items, but chocolate covered biscuits are luxury items. Jaffa Cakes are about the size and shape of say an Oreo, and made up a disc of semi-hard sponge cake, topped with orange jam [jelly] and chocolate. The manufacturers of Jaffa Cakes, McVities classified them as cakes, and were taken to a tribunal by Customs and Excise, who argued that they were in fact chocolate covered biscuits, and so liable for VAT.

McVities defended their case by making a very large Jaffa Cake in order to demonstrate that they really were just mini cakes. They also argued that biscuits go soft when left exposed to the air for long periods, and cakes go hard and since Jaffa Cakes go hard when left out, they were in fact cakes. McVities won their case, and VAT is not charged on Jaffa Cakes.

plonkee from plonkee money writes about personal finance from a British perspective, mostly because she’s British, but everyone is welcome to join in the fun - things aren’t that different on the other side of the Atlantic.

(Photo of Jaffa Cakes by andrew_mrt1976)

We learned last year that taxpayers who itemize have the option of claiming their state and local income taxes or their state and local sales taxes as an itemized deduction on their 2005 returns and that this year will be the last year you will have that option (on your 2006 returns for your 2005 Tax Year).

The rule is that you can deduct actual state and local sales taxes (actual means you must keep receipts) or you can deduct values taken from the sales tax tables. By using the optional general sales tax tables, you don’t need to keep receipts. When you use the optional tables, you can add the tax on big purchases such as a car, plane, boat, mobile home, or home renovation to the total. So if you read off the table that you are eligible to claim a $779 deduction for sales tax and you just bought a $10,000 car in Maryland, you can add $500 (MD Tax is 5.0%) to the optional table value for a total deduction of $1,279.

Where are the sales tax tables? Where is Publication 600?
The tax tables that were available as Publication 600 last year were rolled into the 2005 Instructions for Schedules A & B (Form 1040) on pages A-10 to A-11.

For more information, please read the press release from the IRS.

This article has been made somewhat obsolete for 2006 (2005 tax year). The rules are the same but the documents you reference have changed. See the note at the end of the article.

Welcome to the second article in a series I call Tax Relief 101 designed to help you save some cash from the tax man. You can see the whole collection under the category of Tax Relief 101.

When you are doing your federal taxes, you typically will deduct what you pay to the state in taxes from your income. That prevents double taxation because otherwise you would be taxed on money you paid to your state government. Well, the American Jobs Creation Bill of 2004 has a provision that now allows you to deduct what you’ve paid in state sales tax instead. It’s an ‘either or’ situation, you can deduct one or the other and you must pick. This is an option you can use on your 2004 and 2005 taxes.

First things first, this is for people who itemize deductions on a Schedule A. So if you claim the standard deduction, this option isn’t going to be possible for you. What this does mean is that if you always just claimed standard, perhaps a little investigation would reveal itemizing with state sales tax would produce a greater refund (lower tax liability).

Nine No-Brainer States:
Nine states don’t collect state income tax but to have some sort of state sales tax and so in those states it’s a no-brainer. If you’re a resident of Florida, Nevada, South Dakota, Tennessee, Texas, Washington or Wyoming and you itemize, deducting sales tax is the way to go. Alaska doesn’t have income taxes but some areas do charge sales tax and New Hampshire is the same situation except they only charge taxes on touristy-type activities like meals, hotel rooms, and vehicle rentals. Live elsewhere? Then you need to do the math and decide for yourself.

Calculating the Break:
You have two options: save your receipts or use IRS tables.
1. Save Your Receipts - Stick your receipts in a box, keep a running total, claim the deduction and when the IRS asks (which it probably won’t) then just show them the box.
2. Use IRS Tables - The tables are available here. The IRS document does a good job with its worksheets to help you find out how much you can deduct based on your adjusted gross income. [Pub 600 has been rolled into the Instructions for Schedule A & B]

Alternative: If you made a large purchase such as a car or boat, you can claim the average sales tax deduction from the tables using Method 2 and then add the tax on your large purchase. They might also add other large items like appliances or something similar.

WARNING: Check if you’ve been pushed into the Alternative Minimum Tax, because this might hurt you also. Remember to consider this as an input in your calculations.

I hope this has helped clear up any confusion you may have had regarding the whole “deduct sales tax” thing you might have heard around the water cooler.

2006 UPDATE: The sales tax rules for 2006 (applicable to 2005 tax returns) are roughly the same but Publication 600 no longer exists, it’s been rolled into the instructions of the Schedule A. I’ve written an update to these rules.