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As we settle into the summer, consumers will be experiencing more in terms of holidays than just the ones spent at the beach or lake. This summer alone, roughly 15 states are enacting a tax holiday ranging from clothing to computers to school supplies. Though the goal of a tax holiday is to provide relief to consumers, it can often cause more complications for businesses.
As tax holidays differ in length, location and items, it is hard for organizations to manage temporary and permanent exemptions. To stay ahead of the growing number of tax holidays and exemptions, tax teams need to commit to a seamless tax process to manage the growing complexities.
Ever-Changing Tax Holidays
Just this year, Florida implemented a $1.2 billion tax bill aimed at sales tax holidays and exemptions. The bill is a mixture of short-term and permanent sales taxes with a range of services including school supplies and energy-efficient appliances. Florida is not alone this summer, as multiple states are enacting tax holidays for various services and products.
Though the idea of a sales tax break sounds helpful in theory, it’s actually causing more issues in the long run for consumers, businesses and even the jurisdictions enacting the tax holidays. According to a 2022 report by Tax Foundation, tax holidays do not simulate the economy but just shift the timing of sales. The Tax Foundation also found that most consumers do not fully benefit from tax holidays as the holiday applies to certain products.
While Florida and other states are ramping up their sales tax holidays and exemptions, Virginia announced that it will be ending its annual sales tax holiday weekends. This is not unusual, as several states have previously canceled and reinstated tax holidays year after year. However, these ever-changing trends contribute to a range of complications for organizations, especially those who operate across state lines and need to manage tax compliance.
Combating the Complexity of Tax Holidays
Tax leaders, on a day-to-day basis, are already combating a complicated tax landscape with growing ecommerce trends and changing supply chain demands. The addition of a short-term sales tax holiday creates additional difficulties that can put organizations, retailers and tax leaders at a tax compliance risk. Tax holidays are only short-term solutions, yet they still have a range of administrative tasks that tax leaders need to follow. They often require the same administrative tasks as permanent exemptions to avoid tax compliance issues.
Organizations must ensure they are still managing their sales tax exemption certificates that are required for accurate reporting and tax compliance. This is why it is crucial for tax organizations to have a seamless, centralized tax exemption process, especially if operating in several states.
An additional factor that tax organizations will need to monitor as tax holidays and exemptions continue to arise will be the narrowing of the tax base and how it will impact tax holidays, states and organizations moving forward. This places a great pressure on sales and uses tax as a driving source of revenue for state and local tax jurisdictions.
While tax holidays are here to stay, tax departments can navigate temporary and long-term exemptions well if they have the proper personnel and technology.
Mike Bernard is VP of Tax Content and Chief Tax Officer for Vertex, Inc.