The Project approved moving this paper and proposed amendment to the Streamlined Sales and Use Tax Agreement to Implementing States on August 5, 2004. The Project also recommended introductory language in Part III of the Library of Definitions to limit those definitions to sales tax holidays.
STREAMLINED SALES TAX PROJECT
Definitions for SALES TAX HOLIDAY PROCEDURESSchool Related Supplies
SSTP Recommendations for Amendment to Agreement
July 29, 2004
RELIEVE RETAILERS FROM COLLECTING
Background
Section 322 of the Streamlined Sales and Use Tax Agreement regarding Sales Tax Holidays identified issues in which uniform sales tax holiday procedures should be developed to help in simplifying and streamlining the administration of sales tax holidays. The Sales Tax Holiday Work Group has discussed these issues and recommends amending the SSTP Agreement to provide the following procedures for the uniform administration of sales tax holidays.
Amend subsection C of Section 322: Sales Tax Holidays to read:
The following procedures are to be used by member states in administering a sales tax holiday exemption:
1. Layaway sales - A sale of eligible property under a layaway sale qualifies for exemption if:
(A) final payment on a layaway order is made by, and the property is given to, the purchaser during the exemption period; or
(B) the purchaser selects the property and the retailer accepts the order for the item during the exemption period, for immediate delivery upon full payment, even if delivery is made after the exemption period.
2. Bundled sales - Member states will follow the same procedure during the sales tax holiday as agreed upon for handling a bundled sale at other times.
3. Coupons and discounts - A discount by the seller reduces the sales price of the property and the discounted sales price determines whether the sales price is within a member state's sales tax holiday price threshold. A coupon that reduces the sales price is treated as a discount if the seller is not reimbursed for the coupon amount by a third-party. If a discount applies to the total amount paid by a purchaser rather than to the sales price of a particular item and the purchaser has purchased both eligible property and taxable property, the seller should allocate the discount based on the total sales prices of the taxable property compared to the total sales prices of all property.
4. Splitting of items normally sold together - Articles that are normally sold as a single unit must continue to be sold in that manner. Such articles cannot be priced separately and sold as individual items in order to obtain the exemption. For example, a pair of shoes cannot have each shoe sold separately so that the sales price of each shoe is within a sales tax holiday price threshold.
5. Rain checks - A rain check allows a customer to purchase an item at a certain price at a later time because the particular item was out of stock. Eligible property that customers purchase during the exemption period with use of a rain check will qualify for the exemption regardless of when the rain check was issued. Issuance of a rain check during the exemption period will not qualify eligible property for the exemption if the property is actually purchased after the exemption period.
6. Exchanges - The procedure for an exchange in regards to a sales tax holiday is as follows:
(A) If a customer purchases an item of eligible property during the exemption period, but later exchanges the item for a similar eligible item, even if a different size, different color, or other feature, no additional tax is due even if the exchange is made after the exemption period.
(B) If a customer purchases an item of eligible property during the exemption period, but after the exemption period has ended, the customer returns the item and receives credit on the purchase of a different item, the appropriate sales tax is due on the sale of the newly purchased item.
(C) If a customer purchases an item of eligible property before the exemption period, but during the exemption period the customer returns the item and receives credit on the purchase of a different item of eligible property, no sales tax is due on the sale of the new item if the new item is purchased during the exemption period.
7. Delivery charges - Delivery charges, including shipping, handling and service charges, are part of the sales price of eligible property unless a member state defines "sales price" to exclude such charges. For the purpose of determining a sales tax holiday price threshold, if all the property in a shipment qualifies as eligible property and the sales price for each item in the shipment is within the sales tax holiday price threshold, then the seller does not have to allocate the delivery, handling, or service charge to determine if the price threshold is exceeded. The shipment will be considered a sale of eligible products.
If the shipment includes eligible property and taxable property (including an eligible item with a sales price in excess of the price threshold), the seller should allocate the delivery charge by using:
(1) a percentage based on the total sales prices of the taxable property compared to the total sales prices of all property; or
(2) a percentage based on the total weight of the taxable property compared to the total weight of all property in the shipment.
The seller must tax the percentage of the delivery charge allocated to the taxable property but does not have to tax the percentage allocated to the eligible property.
8. Order date and back orders - For the purpose of a sales tax holiday, eligible property qualifies for exemption if:
(A) the item is both delivered to and paid for by the customer during the exemption period; or
(B) the customer orders and pays for the item and the seller accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period. The seller accepts an order when the seller has taken action to fill the order for immediate shipment. Actions to fill an order include placement of an "in date" stamp on a mail order or assignment of an "order number" to a telephone order. An order is for immediate shipment when the customer does not request delayed shipment. An order is for immediate shipment notwithstanding that the shipment may be delayed because of a backlog of orders or because stock is currently unavailable to, or on back order by, the seller.
9. Returns - For a 60-day period immediately after the sales tax holiday exemption period, when a customer returns an item that would qualify for the exemption, no credit for or refund of sales tax shall be given unless the customer provides a receipt or invoice that shows tax was paid, or the seller has sufficient documentation to show that tax was paid on the specific item. This 60-day period is set solely for the purpose of designating a time period during which the customer must provide documentation that shows that sales tax was paid on returned merchandise. The 60-day period is not intended to change a seller's policy on the time period during which the seller will accept returns.
10. Different time zones - The time zone of the seller's location determines the authorized time period for a sales tax holiday when the purchaser is located in one time zone and a seller is located in another.
Amend Library of Definitions in Appendix C, Part III to add the following sales tax holiday definitions:
1. "Eligible property" means an item of a type, such as clothing, that qualifies for a member state's sales tax holiday exemption.
2. "Layaway sale" means a transaction in which property is set aside for future delivery to a customer who makes a deposit, agrees to pay the balance of the purchase price over a period of time, and, at the end of the payment period, receives the property. An order is accepted for layaway by the seller, when the seller removes the property from normal inventory or clearly identifies the property as sold to the purchaser.
3. "Rain check" means the seller allows a customer to purchase an item at a certain price at a later time because the particular item was out of stock.
Section 322 of the Streamlined Sales and Use Tax Agreement provides that only items that are specifically defined in the Agreement may be exempted for sales tax holiday exemption periods that occur after December 31, 2004. Several states (Georgia, North Carolina, and West Virginia) currently have sales tax holiday exemptions for school supplies, and several other states may choose to enact exemptions for school related supplies in the future. Without specific definitions for school related items, these states will not be able to comply with the Agreement while keeping their current sales tax holiday exemptions for school supplies in place.
Motion
Motion to amend Library of Definitions in Appendix C, Part III to add the following sales tax holiday definitions:
PART III
Sales Tax Holiday Definitions
"School supply" is an item commonly used by a student in a course of study. The term is mutually exclusive of the terms "school art supply," "school instructional material," and "school computer supply," and may be taxed differently. The following is an all-inclusive list:
1. Binders;
2. Book bags;
3. Calculators;
4. Cellophane tape;
5. Blackboard chalk;
6. Compasses;
7. Composition books;
8. Crayons;
9. Erasers;
10. Folders; expandable, pocket, plastic, and manila;
11. Glue, paste, and paste sticks;
12. Highlighters;
13. Index cards;
14. Index card boxes;
15. Legal pads;
16. Lunch boxes;
17. Markers;
18. Notebooks;
19. Paper; loose leaf ruled notebook paper, copy paper, graph paper, tracing paper, manila paper, colored paper, poster board, and construction paper;
20. Pencil boxes and other school supply boxes;
21. Pencil sharpeners;
22. Pencils;
23. Pens;
24. Protractors;
25. Rulers;
26. Scissors; and
27. Writing tablets.
"School art supply" is an item commonly used by a student in a course of study for artwork. The term is mutually exclusive of the terms "school supply," "school instructional material," and "school computer supply," and may be taxed differently. The following is an all-inclusive list:
1. Clay and glazes;
2. Paints; acrylic, tempora, and oil;
3. Paintbrushes for artwork;
4. Sketch and drawing pads; and
5. Watercolors.
"School instructional material" is written material commonly used by a student in a course of study as a reference and to learn the subject being taught. The term is mutually exclusive of the terms "school supply," "school art supply," and "school computer supply," and may be taxed differently. The following is an all-inclusive list:
1. Reference books;
2. Reference maps and globes;
3. Textbooks; and
4. Workbooks.
"School computer supply" is an item commonly used by a student in a course of study in which a computer is used. The term is mutually exclusive of the terms "school supply," "school art supply," and "school instructional material," and may be taxed differently. The following is an all-inclusive list:
1. Computer storage media; diskettes, compact disks;
2. Handheld electronic schedulers, except devices that are cellular phones;
3. Personal digital assistants, except devices that are cellular phones;
4. Computer printers; and
5. Printer supplies for computers; printer paper, printer ink