They say taxes are one of the two certain things in life, but in Texas the sales tax takes a break now and then.
Texas’ sales and use tax, the largest single source of state tax revenue, gets a few days off each year. On these weekends, specific items or categories of items can be sold without state and local sales taxes.
Under state law, Texas observes four of these sales tax holidays each year, for school clothes and supplies; energy-efficient appliances; water-efficient products; and emergency preparation supplies.
The holidays are held in the spring and summer on dates set by the Legislature.
The oldest, biggest and probably best known is the “back-to-school” sales tax holiday held each August, which helps Texas families get their kids ready for the new school year by exempting most clothing, footwear, school supplies and backpacks priced at less than $100 from sales and use taxes. The savings amount to about $8 for every $100 spent.
In fiscal 2017, the Comptroller’s office estimated these exemptions were worth more than $87 million in state and local tax revenue; since its inception, the tax holiday has saved consumers more than $1.1 billion (Exhibit 1).
The legislative rationale for the holiday is that, even in times of economic growth, many Texas families with school-aged children are struggling to get by. The tax relief goes directly to consumers and is designed to apply only to essentials for school use.
|Year||State Sales Tax Saved (in millions of dollars)||Local Sales Taxes Saved (in millions of dollars)||Total Sales Taxes Saved (in millions of dollars)|
Source: Texas Comptroller of Public Accounts
The holiday begins on the Friday preceding the 15th day before the state’s uniform start date for public school classes and ends on the following Sunday at midnight. This year, it falls on Aug. 10 through 12.
Senate Bill 441 created the original “back-to-school” sales tax holiday in 1999. Then and now, it applies to individual items of non-athletic clothing and footwear costing less than $100. Backpacks were exempted in 2007, while school supplies were added in 2009, as long as they’re purchased for use by students in public or private elementary or secondary schools. The $100 threshold applies to the added categories as well.
Consumers can buy up to 10 backpacks tax-free, including messenger bags and those with wheels, but not those on frames. Luggage, briefcases, purses, computer bags and gym bags are excluded. Specialty clothing and footwear not designed for routine use, such as athletic shoes and protective gear, aren’t exempt. Also not covered are accessories, rented apparel, alterations, embroidery and cleaning.
The exemption applies to each eligible item priced below $100, regardless of how many items are sold. For example, if a customer buys two dresses for $70 each, both items are exempt, even though the total purchase price of $140 exceeds $99.99. The exemption can’t be prorated, however; in other words, it can’t be applied to the first $99.99 of the price of an eligible item costing $100 or more.
In-store, online, telephone and mail transactions are covered, as are layaway purchases. Any charges for delivery, shipping and handling billed to the purchaser are considered part of the final selling price.
The 2007 session of the Texas Legislature created a sales tax holiday for energy-efficient products, first held in May 2008. The holiday falls on each Memorial Day weekend.
This exemption was included in omnibus legislation designed to create broad-based energy efficiency and conservation incentives aligned with goals set by the Legislature when it restructured the Texas electricity market in 1999. Among the goals cited was encouraging greater use of energy-saving appliances, as part of a larger effort to reduce electricity consumption and decrease demand on the state’s electric grid.
Certain energy-efficient products with the ENERGY STAR® symbol are tax exempt during the annual holiday. ENERGY STAR® is a voluntary program of the U.S. Environmental Protection Agency (EPA) that helps businesses and individuals save money and protect the environment through superior energy efficiency. Products carrying the ENERGY STAR® logo have been independently certified to provide substantial energy savings.
In all, the ENERGY STAR® tax holiday saved shoppers an estimated $4.7 million in fiscal 2017, and nearly $36 million since the holiday’s inception (Exhibit 2).
There’s no limit on the number of qualifying items that may be purchased, and customers do not have to provide sellers with an exemption certificate. Additional charges can affect the sales price.
Read about their impact, as well as how the exemption applies to contractors and taxable service providers. »
|Year||State Sales Tax Avoided||Local Sales Taxes Avoided||Total Sales Taxes Avoided|
|2008||millions of dollars2.3||millions of dollars0.7||millions of dollars3.0|
|2009||millions of dollars2.3||millions of dollars0.6||millions of dollars2.9|
|2010||millions of dollars2.4||millions of dollars0.7||millions of dollars3.1|
|2011||millions of dollars2.6||millions of dollars0.7||millions of dollars3.3|
|2012||millions of dollars2.7||millions of dollars0.8||millions of dollars3.5|
|2013||millions of dollars2.9||millions of dollars0.8||millions of dollars3.7|
|2014||millions of dollars3.0||millions of dollars0.9||millions of dollars3.9|
|2015||millions of dollars3.0||millions of dollars0.8||millions of dollars3.8|
|2016||millions of dollars3.1||millions of dollars0.9||millions of dollars4.0|
|2017||millions of dollars3.6||millions of dollars1.1||millions of dollars4.7|
|Total||millions of dollars27.9||millions of dollars8.0||millions of dollars35.9|
Source: Texas Comptroller of Public Accounts
In 2015, the Legislature added another sales tax holiday for water-conserving products, to run concurrently with the energy conservation holiday on each Memorial Day weekend.
This legislation eliminates state and local sales taxes on certified water-saving products purchased during the last weekend in May. As with the energy efficiency holiday, there’s no limit on the number of qualifying items that may be purchased without sales taxes. The exemption was valued at $5.9 million in fiscal 2017 and saved taxpayers about $11.6 million in its first two years (2016 and 2017).
During the holiday period, any product displaying a WaterSense® label or logo is tax exempt.
WaterSense is another EPA-run program that labels products and services certified to save energy, use at least 20 percent less water than comparable products and perform as well as or better than average offerings in their categories. The exemption applies to WaterSense products purchased either for personal or business purposes.
Certain other water-conserving products are tax-free during the holiday. Unlike WaterSense-labeled items, however, these products are exempt only when purchased for use on residential property.
Texans are no strangers to natural disasters, of course, as the recent floods of Hurricane Harvey reminded us. In 2015, the Legislature added a sales tax holiday for emergency preparation supplies, the first occurring in April 2016. The program is designed to encourage Texas consumers to reinforce their properties and prepare for upcoming storm seasons. In addition, retailer participation during the weekend raises public awareness about the importance of preparation for weather-related events and potential emergencies.
Certain emergency preparation supplies are available for purchase tax-free starting on the Saturday before the last Monday in April and ending at midnight on that Monday. This year, the holiday occurred April 28-30.
The exemption applies to items including portable generators priced at less than $3,000; hurricane shutters and rescue ladders priced at less than $300; and numerous other items priced less than $75, including portable light sources, batteries, fire extinguishers, waterproof sheeting and hatchets, among others.
Some general camping equipment supplies, such as tents and camp stoves, are not exempt on the holiday; neither are items such as chainsaws, ladders and plywood sheets.
There’s no limit on the number of eligible items customers may purchase, and no certificate required to claim the exemption. Delivery, shipping, handling and transportation charges are considered part of the sales price.
The exemption saved taxpayers an estimated $1.6 million in fiscal 2016 and again in 2017.
In all, Texas’ sales tax holidays have saved consumers nearly $1.2 billion in state and local sales taxes. It’s a hefty sum, but Texas legislators have judged it a worthwhile investment for public convenience, public safety and environmental protection. FN
Want to know more about where your tax dollars go? Visit the Comptroller’s transparency pages.