It’s coming back.
After two straight years without a sales tax holiday, Massachusetts shoppers will once again get a tax-free weekend in 2018. Despite some previous uncertainty, state legislators approved an economic development bill that brings back a two-day sales tax holiday.
Gov. Charlie Baker signed most of the $1.15 billion package Friday, greenlighting the sales tax holiday this weekend.
Understanding that it’s been a minute since Massachusetts residents last had a two-day weekend in which they didn’t have to haul up to New Hampshire to avoid paying the state’s 6.25 percent sales tax, here’s a quick guide on the sales tax holiday, what it does and doesn’t apply to, and its future in the Bay State.
When is it?
This part’s simple: Saturday and Sunday, August 11 to 12.
In the past, certain retailers and malls have extended their hours during the two-day weekend.
The sales tax holiday also applies to online purchases in the state, as long as the item is ordered and paid for within the Eastern Standard Time hours of August 11 and 12. It doesn’t matter when the purchase is actually delivered.
Does the sales tax holiday apply to all purchases?
The holiday waives the state’s sales and use tax for most retail purchases for which the 6.25 percent tax would normally apply. But there are a number of exceptions.
Meals, motor vehicles, motorboats, and tobacco products will still be subject to tax, as will payments for utilities, like gas, steam, and electricity, and telecommunications services.
Additionally, any single item over $2,500 is still subject to the sales tax. That means you can purchase several individual items at a store that, in total, add up to more than $2,500 and avoid paying the sales tax (as long as each individual item is below $2,500).
But any purchase of an item exceeding that threshold will be entirely subject to the tax. So, for example, the 6.25 percent tax would apply to the full price of a $3,000 TV, not just the $500 that exceeds the threshold.
Bundled items sold at a single price — think a luxury living room set or a multi-part home theater system — are also entirely subject to tax if they exceed the $2,500 threshold. The state also forbids retailers from splitting items that would regularly be sold together.
This year, marijuana and marijuana products were added to the list of things that, like tobacco, are not exempt from the sales tax during the holiday. However, no recreational cannabis dispensaries have opened yet in the state and medical marijuana purchases are already not subject to the sales tax, so the provision is a moot point this year.
How does the holiday apply to clothing purchases?
The Massachusetts sales tax currently only applies to clothing purchases that are more than $175. During the sales tax holiday, any clothing purchases between $175 and $2,500 will also be tax-free.
However, it gets a little more complicated for expensive clothes that are priced over the threshold. Customers can deduct $175 from the taxable price of any clothing purchases over $2,500, but that $175 does not raise the threshold. For example, in the case of a purchase of a suit or wedding dress that costs $2,600, the customer would still have to pay the state sales tax on $2,425.
What about discounts, returns, and other types of sales?
If a store discount or coupon lowers the price of an item below the $2,500 threshold, the purchase would be tax free. For example, if a customer uses a store discount or a coupon of 20 percent on a couch that costs $3,000, their $2,400 purchase would be completely exempt from the sales tax.
According to the state, the sales tax on retail purchases can generally be refunded if a return is made within 90 days. However, during the 90-day period following the sales tax holiday, one of the sides must show proof — either a receipt or vendor records — that a sales tax was paid in order for the portion of the sale to be refunded — though retailers can also set their own return policies.
Customers also do not have to pay sales tax on even exchanges for items originally bought during the sales tax holiday, even if the exchange is made at a later date.
Prior and layaway sales, in which the customer makes payments on a purchase over a period of time, are not eligible under the sales tax holiday.
Why did the sales tax holiday go away in the first place?
First implemented in 2004, Massachusetts had a sales tax holiday every year for more than a decade with the exception of 2009, when the state was in the midst of a global recession.
However, lawmakers decided again to ditch the sales tax holiday in 2016 and 2017, primarily citing budget shortfalls at the time. According to state reports, the most recent tax-free weekends resulted in around $25 million in forgone sales tax revenue. That can either be framed as good or bad: Residents saved $25 million in spending or the state lost $25 million in revenue.
The merits of having an annual tax-free weekend have also been debated.
The Tax Foundation, a non-partisan, center-right tax policy think tank, has consistently called sales tax holidays a political gimmick, arguing that they don’t promote economic growth and that they create costly complexities and merely shift the timing of consumer spending. According to the group, 17 other states are holding a sales tax holiday this year.
In a report last month, the Tax Foundation noted that retailers, who are the main supporters of tax holidays, benefit from the free advertising for “what is essentially a modest 4 to 7 percent discount” and that, in some cases, the vendors use the holiday to raise prices ahead of time to take advantage of the “mad customer rush.” They also found that consumer spending slowed during the weeks prior to tax holidays.
The Retailers Association of Massachusetts recently applauded the sales tax holiday’s inclusion in the economic development bill. The association argues the holiday helps level the playing field with vendors — either online or across the border in New Hampshire — who generally do not collect a sales tax during the rest of the year.
On the other hand, the Tax Foundation argues that providing a holiday from sales taxes, which are regressive, is an “implicit recognition” that a state’s tax system is “uncompetitive.”
Will the sales tax holiday happen again next year?
It will, as well as in the foreseeable years after that.
Baker has consistently pushed for a permanent sales tax holiday and that’s what he got in the so-called “grand bargain” bill he signed earlier this summer. The law calls for state lawmakers to annually decide on a weekend each August for the two-day holiday by June 15, though it does not take effect until 2019, which led to some of the late uncertainty this year.
As part of the larger deal, the bill also eliminated time-and-half pay for retail workers on Sundays and holidays (though it also delivered other broad benefits to employees, such as minimum wage increases and a statewide paid leave program). So, whatever weekend the sales tax holiday is next year, just make sure to be extra appreciative to those working that crazy Sunday.