When you sell clothing online, you may have already run into (pardon my pun) a taxing situation. In the U.S., states create their own sales tax laws, and in many states tax clothing is taxed differently or not at all.
This post will explain what you need to know about the taxability of clothing in the U.S. and how you can be sure you’re charging your customers the right amount of sale tax every time.
A Brief History Lesson
In Pennsylvania, clothing is non-taxable, while in Texas clothing is taxable. In New York, clothing priced at under $110 is taxable. Why are some states different than others?
As with many things regarding sales tax, the answer boils down to politics. While most states consider the majority of tangible items taxable, it’s politically popular to exempt necessities like groceries and clothing from sales tax. These exemptions were often created during a down economy when states wanted to give their citizens a measure of relief when buying things they absolutely needed. (That’s why groceries are also often exempted from sales tax, too.)
Why does this matter? You’ll notice that many states, like New York, only exempt clothing priced at under a certain dollar amount. While this makes for political expediency, it can be tough for online sellers to collect the right amount of sales tax due to these rules.
You can see a list of how all U.S. states tax clothing here.
And speaking of New York…
New York’s Clothing Sales Tax Exemption, Explained
Let’s do a deep dive into one state’s clothing sales tax system. I chose New York because it’s a fashion mecca, and because their sales tax law is especially convoluted!
New York has a 4% statewide sales tax rate, but also allows counties and cities to add additional sales tax. That’s why the sales tax rate in Stamford, NY is 8% while the sales tax rate in Buffalo, NY is 8.75%.
When it comes to clothing taxability, all clothing price at under $110 is exempt from the stateside sales tax rate of 4%. But local areas can then choose if they also want to exempt sales tax. This can lead to clothing being “partially taxed.”
Here’s an example:
In New York City, clothing under $110 is exempt from state and local rates. So, if you buy a $99 pair of jeans at Macy’s, you would not pay sales tax on that purchase.
In Mahopac, which is in Putnam county, clothing is not exempt from local sales tax rates. So, if you buy a pair of jeans in Mahopac, you won’t pay the 4% statewide sales tax rate, but you will pay the 4.375% Mahopac local sales tax rates.
As an online seller, if you charge sales tax in New York, you are required to charge sales tax at your buyer’s ship-to address. So, if you ship to someone in NYC – no problem, there’s no sales tax on clothing under $110. But if you ship to someone in Mahopoc or another area with local sales tax on clothing, you need to be sure you’re charging the right amount in local sales tax.
Confusing, right? Keep reading for help collecting the right amount of sales tax from your customers. In the meantime, you can read all about the New York Clothing Sales Tax Exemption in this publication from the New York Department of Taxation.
Sales Tax Holidays
To throw another monkey wrench into the mix, many states also have sales tax holidays. These are a few days set aside each year when certain items are not tax-free. Many states have “back to school” sales tax holidays in the fall when school supplies and school clothes are non-taxable.
State laws vary on whether retailers must participate in the holiday, but if you’re a clothing brand and you don’t participate in the holiday, you may lose sales to stores who do.
Here’s a list of 2017 sales tax holidays.
How can online sellers handle sales tax on clothing?
Technology to the rescue! A good sales tax calculation engine will ensure that you collect the right amount of sales tax from every customer, every time.
All you have to do is tell your sales tax calculation engine that you are selling clothing, and enter the address from where your orders ship. From there, you’ll always charge the right amount of sales tax.
Sales tax rates and rules change often, but a good sales tax collection engine keeps up with all changes so all you should worry about is keeping your virtual shelves stocked.
I hope this post has demystified clothing taxability. Have questions or something to say? Start the conversation in the comments!
TaxJar is a service that makes sales tax reporting and filing simple for more than 8,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!