2014 SALES TAX HOLIDAY FOR NEW ENERGY STAR AND WATERSENSE PRODUCTS
Most of us know about the back to school tax holiday. But, not nearly as many know about another tax holiday that is almost upon us. This mostly unknown tax holiday begins at 12:01 a.m. on Friday, September 19th and lasts until 11:59 p.m. on Sunday, September 21st. This tax holiday involves items mentioned in the title of this article. And, like the back to school sales tax holiday, it has nuances and limitations that consumers and businesses need to know about so they can properly pay or collect (or not pay and not collect) the appropriate amount of tax.
This upcoming sales tax holiday provides that no sales tax or discretionary surtax (local option tax) shall be collected on the first $1,500 of the sales price of a new qualifying Energy Star or WaterSense product. The exemption is limited to a single purchase for each specific type of qualifying item having a sales price of $500 or more. There is no quantity limit on qualifying items sold for less than $500. For reference the qualifying products are listed below:
Qualifying Energy Star Products – air purifier, ceiling fan, clothes washer, dehumidifier, dishwasher, freezer, light bulbs (packages), refrigerator, room air conditioner, swimming pool pump, and water heater
Qualifying WaterSense Products – bathroom sink faucet, faucet accessory, high-efficiency toilet or urinal, showerhead, and weather or sensor-based irrigation controller.
One caveat, for the Energy Star and WaterSense products, they must be designated/recognized by the EPA (U.S. Environmental Protection Agency) as meeting or exceeding the EPA requirements for the respective program (Energy Star or WaterSense). An Energy Star or WaterSense label must be affixed to the product. The notice indicates that the holiday does not apply to the rental or repair of any of the items. This disclaimer is under the WaterSense product listing and arguably only applies to this category but the Department might argue otherwise.
As noted above, there is a single purchase limitation included for the tax holiday. This means each person is limited to a single purchase of each specific type of qualifying item with a sales price of $500 or more. A second purchase of the same type of qualifying item will be subject to tax. But, there are no limits on qualifying items with a sales price of less than $500. So, if four different qualifying items are purchased, and each is less than $1500, the total sales amount would be exempt from tax. If two items of the same type were purchased (like two refrigerators) then the second refrigerator would be subject to tax (assuming it is more than $500). If multiple item types are purchased, the ones under $500 or exempt from tax without limit. But remember, the exemption only goes up to $1500 so any amount over that for a qualifying item would be subject to tax.
The notice also address installation charges. If a qualifying Energy Star or WaterSense product does not become part of realty and remains TPP (tangible personal property) upon installation, any separately stated installation charges are considered part of the sales price and is exempt if the sales prices is $1,500 or less. The notice includes an example of the installation of an Energy Star window air conditioner which would be exempt (considered TPP) versus the installation of a WaterSense shower head which would be taxable (becomes part of realty upon installation). If you want to review the examples in more detail, you can find the notice in its entirety at the end of this article.
With respect to service warranties, the sales price for service warranty contracts is taxable based on the taxability of the product being sold. If the item being sold is exempt from tax then the sales price for the related service warranty for the item is exempt. Note that this is applied in conjunction with the tax holiday. So, if an item is exempt per the tax holiday then the associated warranty would be exempt. There can be a question on the timing of the purchase. If the purchase of a service warranty occurs after the expiration of the holiday for an item that was exempt only during the tax holiday then it is arguable that the service warranty would only be exempt during the holiday. But, this is not directly addressed by/in the notice so you would be at risk if the purchase/sale does not occur at the time of the transaction during the holiday so be advised. But, an exchange of an item after the tax holiday is exempt if it is for the same item. An exchange of an exempt item for a different item would be subject to tax (assuming it is after the tax holiday has expired and for an item that qualified during the tax holiday).
The treatment of coupons, discounts, and rebates is treated like in any other purchase. This means that the sale price includes all consideration received by the retailer on the sale. Therefore, the sales price is not limited to the amount paid by a customer. A coupon, discount, ore rebate offered by the retail seller reduces the sales price. But, a manufacturer's coupon, discount, or rebate is included in the sales price. Again, the notice provides several examples to illustrate the taxability of these situations. If the price is less than $1,500 for the first qualifying item, then there is no difference in the treatment.
The notice also covers other miscellaneous issues for the tax holiday. Paying by gift card does not reduce the sales price for exemption purposes. The sale of a gift card is not taxable. But, taxability of the purchase by use of a gift card (purchased during or outside the tax holiday) will be based on the date of purchase for applicability of the tax holiday. Mail-order, catalog, or internet sales are exempt if the order is accepted by the retailer during the holiday for immediate shipment even if the ultimate shipment is after the tax holiday. Shipping and handling charges are port of the sales price of an item. If multiple items are purchased and shipped on a single invoice/receipt then those charges must be fairly assigned to each item on the invoice/receipt to determine the proper taxability. For rain checks, an item purchased during the tax holiday using a rain check will be exempt regardless of the issue date of the rain check but a rain check issued during the tax holiday for sale after it will not qualify the item for exemption under the tax holiday. Layaway sales of qualifying items will qualify for the exemption if the customer takes delivery of the qualifying item during the holiday period OR puts a qualifying item on layaway – even if final payment is made after the tax holiday period expires.
There is a separate note at the end of the notice for Bay County dealers only. The note advises Panama City and Panama City Beach dealers that the 1% merchant's license fee or tax on retailers is included in the sales price of qualifying items. If it is separately stated, then it must be apportioned to the various items for determining the exemption application for this holiday. As with some of the other items, an example is provided.
What does this mean for customers? It means that you should review the list to see if you need any items on the list. This gives customers the opportunity to save sales tax on purchases that otherwise would include tax on the cost. This sales tax savings is separate from any federal incentives that might also apply. The tax holiday is not long so we are putting this information out for your reference so you have as much time as possible to determine if you can and want to take advantage of the holiday.
But, there is a bigger implication for retailers. You need to know the proper treatment in case a customer wants to take advantage of the tax holiday. If you do not update your registers to automatically apply the tax holiday treatment for qualifying items then any tax you charge that should not have been charged is State property once it is collected. If the customer later realizes that they paid tax in error, they will come to you for a refund and then you have to worry about recording and taking the line 6 credit on your sales tax return. Though this may not sound like a large potential cost, there is the "aggravation" factor associated with the process for the customer and every business strives to satisfy its customers. But, if a business adjusts its registers to automatically apply the tax holiday to transactions, then you must correctly control the application. If the business incorrectly fails to charge tax starting Monday, September 22nd, then it is on the hook for the sales tax owed. This additional cost will impact a bottom line and could add up to significant dollars if the error is not caught quickly.
Bottom line, it is an election year and the government is trying to help out consumers through some more temporary tax savings. But, businesses subject to the holiday must be advised on all the details so they don't get caught ultimately subsidizing Florida's taxpayers for the government's intended good will through the application of this tax holiday. If you have any questions about this tax holiday, do not hesitate to give us a call so we can discuss how it applies to your operations so you fully understand its applicability to properly handle transactions during the tax holiday and not subject your business to additional sales tax liability.
About the author: Mr. Parker is a sales and use tax attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice includes state tax audits and controversies involving sales and use tax and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Parker received his law degree and L.L.M. in Taxation from the University of Florida. To learn more about Mr. Parker, please visit his firmbio.
ADDITIONAL RESOURCES
TIP #14A01-06 – New Energy Star and WaterSense Products, dated 8-8-14