Sales tax holiday should boost state’s economy
As Governor Pat Quinn signed the Illinois State Sales Tax Holiday into law on July 7, IRMA President & CEO David F. Vite welcomed the program as a needed economic stimulus for both consumers and retailers.
Illinois’ State Sales Tax Holiday will run from Aug. 6-15. It will suspend the State’s Sales Tax of 5 percent on eligible school supplies, clothing and footwear while leaving the 1.25 percent rate paid to local governments. The tax exemption applies to clothing and footwear with a retail selling price of less than $100. However, computers and computer supplies, PDA’s and cameras are not eligible.
“We’re pleased the Illinois State Legislature and Governor Pat Quinn agreed to provide tax relief to consumers,” Vite told the media before Quinn signed the bill. “Both consumers and businesses have been crying out for relief during this difficult economic downturn. The road to recovery goes through retailing and consumers, and Illinois’ first-ever sales tax holiday will go a long way in aiding these efforts.”
In similar fashion to the Energy Star Appliance Rebate Program earlier in the year, IRMA held a special Webinar to help retailers understand the finer points of the 10-day Sales Tax Holiday.
The Holiday will provide much-needed stimulus to encourage spending, while local governments will benefit with a bump in their revenues. Across the nation, 18 other states have held sales tax holidays, all of which have been successful. Each has generated a positive economic impact to the economy of their states.
According to a study of the Florida Sales Tax Holiday by the Washington Economics Group (WEG), the tax holiday has a positive economic impact, increasing gross sales by about 8 percent for the month in which it is held.
While Florida has run eight school sales tax holidays, the WEG analysis found it missed out when it did not do so in 2008 and 2009. If Florida had held a tax holiday in 2009, WEG said it would have represented an increase in economic activity of about $1.7 billion, boosting Florida’s Gross Domestic Product by close to $1 billion for the year. The tax holiday also would have resulted in a net increase of $118 million in state and local taxes as a result of increased economic activity.
The study suggests that because of the competitive nature of retailing, all savings from a tax holiday end up in the pockets of consumers. The popular program increases store traffic in all retail sectors, and results in an increase in both jobs and overall sales tax revenue, both sorely needed in Illinois.
“Sales tax holidays are something both conservatives and liberals can agree on,” Vite said. “Conservatives like lower taxes and less government while liberals like to give tax relief to those who need it most. Sales tax holidays do both.”
State officials outline tax holiday rules
Effective August 6, 2010, through August 15, 2010, a state sales tax holiday will be implemented and certain items purchased during this time period will have a reduced sales tax rate. The sales tax rate you will be required to collect during the holiday period is the rate currently in effect on the date of the holiday minus 5 percent. The Illinois Department of Revenue’s list of qualified items is constantly evolving. For updates, visit the DOR’s website at tax.illinois.gov.
Clothing
Retail selling price must be less than $100, including
• household and shop aprons
• athletic supporters
• bathing suits and caps
• belts and suspenders
• coats and jackets
• gloves and mittens
• hats, caps, and ear muffs
• lab coats
• neckties
• rainwear
• rubber pants
• scarves
• underwear
• school uniforms
• shorts and pants
• skirts and dresses
• hosiery and pantyhose
• shirts and blouses
Footwear
Retail selling price must be less than $100, including:
• shoes, sneakers, and shoe laces
• sandals
• slippers
• socks and stockings
• footlets
• boots and overshoes
• insoles for shoes
• steel-toed shoes
School supplies
Must be used by students in the course of study, including:
• binders
• book bags
• calculators
• cellophane tape
• blackboard chalk
• compasses
• composition books
• crayons
• erasers
• expandable pocket, plastic, and manila folders
• glue, paste, and paste sticks
• highlighters
• index cards and index card boxes
• legal pads
• lunch boxes
• markers
• notebook paper, including loose leaf notebook, copy, graph, tracing, manila, colored and construction paper, and poster board
• pencils and pencil leads
• pens, ink, and ink refills for pens
• pencil boxes and other school supply boxes
• pencil sharpeners
• protractors and rulers
• scissors
• writing tablets
Rules for Special Sales
Coupons and discounts
To determine whether the eligible clothing item’s retail selling price is below $100, look at the price after the unreimbursed coupon or store markdown but before a reimbursed coupon.
Bundled sales
Qualifying items bundled with items that do not qualify for the state sales tax holiday rate will be subject to the reduced tax rate only if the value of the qualifying items exceed the value of the non-qualifying items.
Splitting items
Articles normally sold as a single unit must continue to be sold as such to determine whether the selling price is within the state sales tax holiday price threshold. For example, a pair of shoes with a selling price of $125.00 cannot be sold separately so the sales price of each shoe is within the sales tax holiday price threshold.
Rain checks
Qualifying items purchased during the holiday with a rain check issued prior to the state sales tax holiday will qualify for the reduced sales tax rate. Qualifying items purchased after the state sales tax holiday with rain checks issued during the holiday are not eligible for the reduced tax rate.
Exchanges
If a customer purchases a qualifying item during the state sales tax holiday, but after the holiday exchanges it for a different size, color, or other feature at the same or lower price, no additional tax will be due.
If a customer purchases a qualifying item during the state sales tax holiday, but after the holiday returns the item and receives credit on the purchase of a different item, they will receive credit for the holiday tax paid. The customer is charged the full sales tax rate on the purchase of a new item.
If a customer purchases a qualifying item before the state sales tax holiday period, but returns it during the sales tax holiday period and receives credit on the purchase of a different item that is eligible, the reduced rate of sales tax is due if the replacement item is purchased during the holiday.
Delivery charges
Delivery charges are part of the selling price of an item of clothing for purposes of calculating the $100 threshold unless the seller and buyer have a separate agreement for delivery. Follow these steps.
Step 1: Determine if there is a separate agreement for delivery. A separate agreement is established • when the seller and the buyer have a separate contract for delivery charges and those charges do not exceed the cost of delivery (they are taxable to the extent they exceed the actual cost of delivery); or
• the seller can document that the buyer has the option of taking delivery at the seller’s location for the agreed purchase price or having delivery made for the agreed purchase price plus an ascertainable delivery charge (they are taxable to the extent that they exceed the actual cost of delivery). Example: An on-line or catalog seller offers buyers the option of picking up the item at a local store. If a separate agreement exists, delivery charges are not part of the item’s selling price. Do not add delivery charges to the item’s selling price for purposes of calculating the $100 threshold. Do not go to Step 2.
• If a separate agreement does not exist, the delivery charge should be apportioned to each item. Go to Step 2.
Step 2: Calculate what percentage of the total order (not including delivery) is attributable to each item. Apply that percentage to the total delivery charge to apportion the delivery charge to each item. Next, add the apportioned delivery charge to each item to determine if the $100 threshold is met.
Example: Two jackets purchased (one for $95 and one for $60) as part of one transaction with a $10 delivery charge — $95 Jacket ($95 is 61% of $155 subtotal). 61% of $10 delivery charge = $6.10; total price for purposes of calculating threshold is $101.10, (ineligible for the state sales tax holiday rate). $60 Jacket ($60 is 39% of $155 subtotal). 39% of $10 delivery charge = $3.90; total price for purposes of calculating threshold is $63.90, (eligible for the state sales tax holiday rate) $155 Subtotal; $10 Delivery; $165 Total.
Back orders
Qualifying items will be eligible for the reduced sales tax rate if:
• the item is delivered and paid for by the customer during the state sales tax holiday period, or
• the customer orders and pays for the item and you, the retailer, accept the order during the sales tax holiday for immediate delivery even if it is delivered after the state sales tax holiday period.
Returns
Retailers may establish their own policy for a time period to accept returns for credit or refund. However, if a customer does not provide a receipt, invoice, or other proper documentation that shows a tax rate different than the state sales tax holiday rate, the refund or credit given for any and all returns within the 60-day period immediately following the state sales tax holiday period shall be refunded or credited at the reduced tax rate. In order to receive credit for tax refunded to your customer, you will need to file Form ST-1-X, Amended Sales and Use Tax Return. If you have more than one site, you will need to complete Form ST-2-X, Amended Multiple Site Form.
Business account purchases
The reduced rate of tax applies only to school supplies used by a student in the course of study; therefore, items that may be classified as school supplies purchased under a business account are subject to the full rate of tax. Sales made under one of the following circumstances are considered business purchases:
• the purchaser is billed under a business account maintained at the retailer;
• items are purchased using a business membership at a retailer that is membership based;
• items are purchased using a business check (rather than a personal check);
• items are purchased using a credit card issued to a business by the retailer (rather than a credit card issued by a third party); or
• items are delivered to the business.
U.S. families to spend more
American families are expected to spend more on back-to-school supplies and clothing than either of the last two years, according to the National Retail Federation.
The NRF’s 2010 Consumer Intentions and Actions Back to School Survey, conducted by BIGresearch, found the average family will spend $606.40, compared to $548.72 last year and $594.24 in 2008.
The survey found that 44.3 percent will buy more store brand or generic products and a growing number of parents (30.3 percent) will compare shop online. Apparel will take up the majority of consumer budgets and 71.2 percent said they will shop at a discount store, with 53.9 percent expected to visit a department store.
Retailers win in Washington
Retailers won a victory in Washington, D.C. when the U.S. Senate passed a financial services reform bill requiring reasonable debit and credit card fees. The U.S. House passed the bill on June 30 and it now awaits President Obama’s signature.
The bill includes an amendment sponsored by Senate Majority Whip Richard Durbin (D-IL) requiring the Federal Reserve to set regulations resulting in “reasonable and proportional” swipe fees for debit cards.
The amendment would also bar the card industry from interfering with merchants who offer a discount or other benefit to customers who pay by cash, check or debit rather than credit cards. Merchants would be able to set minimum purchase amounts of up to $10 for credit cards.
Jobless rate drops again
The Illinois seasonally adjusted unemployment rate dropped 0.4 points to 10.4 percent in June, according to the Illinois Department of Employment Security.
The manufacturing sector (1,600 jobs) and the construction sector (3,400 jobs) led the private sector’s gain of 9,000 new jobs in June and offset the expected loss of temporary Census 2010 positions.
Illinois payroll employment is up in 2010 by 59,600 jobs – the majority of that growth in the private sector.
FDA website outlines new retail tobacco regulations
The Food and Drug Administration has launched a new campaign to educate retailers and raise awareness about new tobacco product regulations designed to protect kids from the dangers of tobacco use.
The new FDA regulations became effective on June 22. A new website, www.fda.gov/BreakTheChain, was launched to educate retailers about the regulations.
The website includes detailed guidance on the new regulations, directions on how to syndicate FDA Center for Tobacco Products content on company websites and directions on how to sign up for FDA e-mail updates.
