On August 1, 2011, Massachusetts Governor Deval Patrick signed legislation, establishing a sales tax holiday on August 13 and 14, 2011. The bill provides that the state sales tax will not be imposed on nonbusiness sales at retail of tangible personal property with a purchase price of $2,500 or less. Telecommunications, tobacco products subject to the cigarette excise tax, gas, steam electricity, motor vehicles, motorboats, and meals will be excluded. Transfer of possession of or payment in full for the property shall occur on one of those days, and prior sales or layaway sales are ineligible. The Department of Revenue has issued guidelines implementing the 2011 sales tax holiday. (applicable to sales on 08/13/2011 and 08/14/2011)
Qualifying purchases. The sales tax exemption applies to sales of tangible personal property for personal use only. Purchases exempt from sales tax are also exempt from use tax. Therefore, eligible items of tangible personal property purchased on the Massachusetts sales tax holiday from out-of-state retailers for use in Massachusetts are exempt from Massachusetts use tax.
Nonexempt sales. The sales tax holiday does not apply to sales of motor vehicles, motorboats, meals, telecommunications services, gas, steam, electricity, tobacco products, and any single item costing in excess of $2,500.
“Motor vehicle” means a motorized, self-propelled vehicle which is constructed and designed for transportation or travel over a land surface, including low-speed vehicles and limited use vehicles, but not including motorized bicycles. It also means snow vehicle and recreation vehicle. Rentals of motor vehicles are also not eligible for the holiday.
Motorboats, including jet skis, are not exempt under the sales tax holiday. Generally, the sales tax holiday will apply to purchases of canoes, kayaks, rowboats, and other types of watercraft with no mechanical propulsion, provided that the sales price is $2,500 or less.
“Meals” are any food or beverage, or both, prepared for human consumption and provided by a restaurant, where the food or beverages is intended for consumption on or off the restaurant premises, and includes food or beverages sold on a “take out” or “to go” basis, whether or not they are packaged or wrapped and whether or not they are taken from the premises of the restaurant.
Gas for purposes of the holiday refers to natural gas. Sales of gasoline are not subject to the sales tax.
“Telecommunications services” are any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiber optics, laser, microwave, radio, satellite or similar facilities but not including cable television. Sales of prepaid calling arrangements and cards are not eligible for the sales tax holiday. Telecommunications equipment, such as a telephone or cell phone purchased for nonbusiness use, is eligible for the sales tax holiday
Tobacco products include cigarettes, cigars and smoking and smokeless tobacco. Layaway sales do not qualify for the exemption even if the last required payment or payments necessary to complete the transaction are made on August 13 or 14, 2011. Sales of the excluded items remain taxable.
Specific rules. The Department provided specific rules to be applied by retailers in administering the Massachusetts sales tax holiday exemption.
Threshold: Generally, sales or use tax is due on the entire sales price of a single item worth more than $2,500. The sales price is not reduced by the threshold amount. However, since there is no sales tax on any article of clothing worth less than $175, only the increment of the sales price of the article of clothing over $175 is subject to tax.
Multiple items on one invoice: Separate invoices do not have to be prepared when a customer purchases multiple items during the sales tax holiday. As long as each item is priced $2,500 or less, there is no upper limit on the tax-free amount each customer may purchase.
Bundled transactions: When several items are offered for sale at a single price, the entire package is exempt if the sales price of the package is $2,500 or less. Items that are priced separately and are to be sold separately qualify for the sales tax holiday exemption if the price of each item is $2,500 or less.
Coupons and discounts: If a store coupon or discount reduces the sales price of an article, the discounted sales price determines whether the sales price is within the sales tax holiday threshold. If the purchaser bought both an eligible property and a taxable property and the coupon or discount applies to the total amount paid by the purchaser, the seller allocates the discount on a pro rata basis to each article sold.
Exchanges: In case of an even exchange of an eligible item purchased during the sales tax holiday no tax is due even if the exchange is made after the sales tax holiday.
Special orders: Special order items are eligible for the sales tax holiday exemption provided they are ordered and paid in full on the sales tax holiday weekend and the cost of each item is $2,500 or less even if the items are delivered at a later date. A prior special order purchase with a deposit made before August 13, 2011 will not qualify for the sales tax holiday exemption even if the customer pays the entire remaining balance due on August 13 or 14, 2011.
Rain checks: Eligible property bought with the use of a rain check during the sales tax holiday weekend qualifies for the exemption regardless of when the rain check was issued. Issuance of a rain check during the sales tax holiday weekend will not qualify otherwise eligible property for the sales tax holiday exemption if the property is actually purchased after the sales tax holiday.
Rentals: Generally, rentals for 30 days or less of eligible tangible personal property are eligible for the sales tax holiday even if the rental period covers days before or after the holiday provided payment in full is made during the sales tax holiday weekend.
Rebates: A rebate is generally treated as a cash discount and is excluded from the sales price. So, the discounted sales price determines whether the sales price is within the sales tax holiday threshold. If the customer receives a rebate after the sale by mailing a coupon to the manufacturer, the full purchase price of the property determines whether the sales price is within the sales tax holiday price threshold and tax must be charged on the full purchase price if it is over $2,500. If the customer receives a cash discount from the vendor upon the purchase of tangible property and a manufacturer’s rebate after the sale, only the cash discount given by the vendor is excluded from the sales price for purposes of the sales tax holiday exemption.
Internet sales: An eligible property ordered over the Internet is exempt if it is ordered and paid for on August 13 or 14, 2011, Eastern Daylight Time, even if the property is delivered after the sales tax holiday period.
Splitting items normally sold together: Articles normally sold as a single unit cannot be priced separately and sold as individual items in order to qualify for the sales tax holiday exemption.
Returns: Under the law, sales tax may only be refunded if returns are made within 90 days of the sale. During the 90-day period after August 13 or 14, 2011, a retailer may not credit a retail customer who returns an item that could have qualified for the sales tax holiday exemption, unless the customer provides a receipt or invoice showing the tax was paid or the seller’s records show that tax was paid.
Erroneously collected taxes: Customers who were erroneously charged sales tax for an exempt purchase may obtain a tax refund from the vendor. The vendor that has remitted erroneously collected tax to the Department may file an abatement application within three years with satisfactory evidence that the vendor credited or refunded the tax to the purchaser.
Retailers’ responsibilities. All Massachusetts businesses normally making taxable sales of tangible personal property on August 13 and 14, 2011 and out-of-state retailers registered to collect Massachusetts sales and use taxes must participate in the sales tax holiday. Any sales or use tax erroneously collected by a retailer during the sales tax holiday must be remitted to the Department. Retailers must keep normal business records showing the date of sale, items purchased and selling price. Purchasers paying for tangible personal property with business credit cards or checks must be charged tax on the items purchased. Normal business records showing the date of sale, items purchased, and selling price must be kept by the retailer/vendor. However, a separate certification from the purchaser on transactions of $1,000 or more will not be required for the 2011 sales tax holiday.
Penalties. Retailers that back-date sales occurring after August 14, 2011 or that forward-date sales that occurred before August 13, 2011 in order to make them appear to qualify for the sales tax holiday may be subject to the tax evasion penalties of Mass. Gen. L. § 73 , including a felony conviction, a fine of not more than $100,000 or $500,000 in the case of a corporation, or by imprisonment for not more than five years, or both, and may also be required to pay the costs of prosecution.
The IRS has warned senior citizens and other taxpayers to beware of an emerging scheme tempting them to file tax returns claiming fraudulent refunds. The scheme carries a common theme of promising refunds to people who have little or no income and normally do not have to file a tax return. Under the scheme, promoters claim they can obtain a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. The IRS is actively investigating the sources of the scheme and its promoters may be subject to criminal prosecution.
