Sales & Use Directive SD-02-1 Subject: Sales Tax Holiday Tax: Sales and Use Tax Law: G.S. 105-164.13C Issued By: Sales and Use Tax Division Date: July 1, 2002 Number: SD-02-1 Scope This Directive sets out information on the application of sales and use tax during the sales tax holiday period provided by G.S. 105-164.13C. During the sales tax holiday period, retail sales of specific items are exempt from all State and local sales or use taxes, including the Mecklenburg Public Transportation Tax. Holiday Period The period of the holiday is from 12:01 a.m. on the first Friday in August through 11:59 p.m. the following Sunday. For 2002, the dates are Friday, August 2nd through Sunday, August 4th. Definitions G.S. 105-164.3 contains the following definitions that apply to the sales tax holiday. Some of the definitions apply to items that are exempt from tax during the holiday period and some apply to items that are subject to tax during the holiday period. Sections V and VII of this Directive list items that are included in these terms. (3) Clothing - All human wearing apparel suitable for general use including coats, jackets, hats, hosiery, scarves, and shoes. (4) Clothing accessories or equipment - Incidental items worn on the person or in conjunction with clothing including jewelry, cosmetics, eyewear, wallets, and watches. (31) Protective equipment - Items for human wear designed as protection of the wearer against injury or disease or as protection against damage or injury of other persons or property but not suitable for general use including breathing masks, face shields, hard hats, and tool belts. (42) Sport or recreational equipment - Items designed for human use and worn in conjunction with an athletic or recreational activity that are not suitable for general use including ballet shoes, cleated athletic shoes, shin guards, and ski boots. Exempt Property Sales of the following items are exempt from sales or use tax during the sales tax holiday period, unless the items are sold for use in a trade or business or are sold under a deferred payment plan and are not delivered during the holiday period: (1) Clothing with a sales price of one hundred dollars ($100.00) or less per item. (2) Sport or recreational equipment with a sales price of fifty dollars ($50.00) or less per item. (3) School supplies, such as pens, pencils, paper, binders, notebooks, textbooks, reference books, book bags, lunchboxes, and calculators, with a sales price of one hundred dollars ($100.00) or less per item. The exemption applies to items purchased for any use other than use in a trade or business; therefore, the item need not be intended for use in school or in connection with a school activity to receive the exemption. (4) Computers with a sales price of three thousand five hundred dollars ($3,500.00) or less per item. For the purpose of the exemption, "computer" means a central processing unit for personal use plus any peripherals sold with it and any computer software installed in it at the time of purchase. The exemption applies to desktops, laptops, and hand-held computers. Peripherals include monitors, keyboards, printers, and scanners. The separate sale of a peripheral, other than a printer, is taxable. Sales of printers at a sales price of less than $3,500.00 are exempt. (5) Printers and printer supplies with a sales price of three thousand five hundred dollars ($3,500.00) or less per item. Printer supplies include ink cartridges and paper. (6) Educational computer software with a sales price of three thousand five hundred dollars ($3,500.00) or less per item. Educational software is software designed to teach the user a subject, such as reading, math, geography, science, or a foreign language, or how to develop a skill other than how to play a game. Software that teaches the user how to play a musical instrument or type is educational software. Software that teaches the user to play bridge, chess, or another game is not educational software. Educational software does not include any of the following types of software: Business management. Database. Financial. Entertainment, which includes action games, adventure games, card and casino games, simulation games, sports games, and strategy games. Graphics. Office suite. Programming. Utility, including virus detection. List of Property Eligible for Exemption A. Clothing The following is a list of items that are included in the term "clothing" and are therefore exempt from tax during the sales tax holiday period if their sales price is $100.00 or less per item. The list is not all-inclusive. Aprons, household and shop Athletic supporters Baby receiving blankets Bandannas Bathing suits and caps Beach capes and coats Belts and suspenders Boots Coats, jackets, capes, and wraps Costumes (does not include costume masks sold separately) Diapers (children and adults, including disposables) Earmuffs Footlets Formal wear (rentals are not eligible) Garters and garter belts Girdles Gloves and mittens for general use Hats and caps Hosiery Insoles for shoes Jogging suits Lab coats Leotards and tights Neckties Overshoes Panty hose Rainwear Rubber pants Sandals Scarves Shoes and shoelaces Slippers Sneakers Socks and stockings Steel-toed shoes Underwear Uniforms, athletic and nonathletic Wedding apparel (does not include rentals) B. Sport or Recreational Equipment The following is a list of items that are included in the term "sport or recreational equipment" and are therefore exempt from tax during the sales tax holiday period if their sales price is $50.00 or less per item. The list is not all-inclusive. Ballet and tap shoes Cleated or spiked athletic shoes Gloves (baseball, bowling, boxing, hockey, golf, and other sports) Goggles Hand and elbow guards Life preservers and vests Mouth guards Roller and ice skates Shin guards Shoulder pads Ski boots Waders Wetsuits and fins C. School Supplies The following is a list of items that are included in the term "school supplies" and are therefore exempt from tax during the sales tax holiday period if their sales price is $100.00 or less per item. The list is not all-inclusive. Art supplies Binders "Bluebooks" Book bags Calculators Compasses Composition books Crayons Erasers Folders Glue or paste Highlighters Index cards Lunch boxes Notebooks Paper Paper clips and binder clips Pencils Pencil sharpeners (manual and electric) Pens Protractors Reference books Reference maps and globes Scissors Staplers and staples Textbooks Non-Exempt Property The sales tax holiday applies only to items included in the list of exempt property. It does not apply to any of the following: Clothing accessories or equipment. Protective equipment. Furniture. Any item sold by means of a layaway contract or similar deferred payment and delivery plan, unless the item is delivered during the holiday period. Any item sold for use in a trade or business. Any rental of property. Luggage. Stereo Equipment, VCRs, DVD players, and similar items. List of Property Not Eligible for Exemption A. Clothing Accessories or Equipment The following is a list of items that are included in the term "clothing accessories or equipment" and are therefore subject to tax during the sales tax holiday period. The list is not all-inclusive. Briefcases Cosmetics Hair notions, including barrettes, hair bows, hairnets, and similar items. Handbags Handkerchiefs Jewelry Sunglasses, nonprescription Umbrellas Wallets Watches Wigs and hairpieces B. Protective Equipment The following is a list of items that are included in the term "protective equipment" and are therefore subject to tax during the sales tax holiday period. The list is not all-inclusive. Breathing masks Clean room apparel and equipment Ear and hearing protectors Face shields Finger guards Hard hats Helmets Print or dust respirators Protective gloves Safety glasses and goggles Safety belts Tool belts Welders' gloves and masks Holiday Exemption Certificate For any item with a sales price of $1,000.00 or more, a retailer must obtain and keep a Sales Tax Holiday Exemption Certificate, Form E-599H, or other evidence sufficient to support an exemption from tax. Copies of Form E-599H can be obtained from the Department's Forms Line at telephone number (919) 715-0397, from the Department's website at ncdor.gov, or from a local revenue office. Specific Issues The following information sets out the application of tax with respect to various matters concerning sales during the sales tax holiday period. Discounts and Retailer Coupons - A discount given by a retailer constitutes a reduction in sales price and the amount of the discount is deducted before determining whether an item is eligible for the exemption. For example, if a retailer issues a 15% off coupon and a customer purchases a dress with a price of $105.00 and uses the coupon, the dress is exempt from tax. The price of the dress after the 15% reduction is less than $100.00, which is the per item clothing price limit for an exemption. Layaways - An item placed in a layaway or similar deferred plan during a sales tax holiday period is not eligible for the exemption unless the item is delivered to the purchaser during the period. An item that was placed in a layaway or similar deferred plan before a sales tax holiday period and is then delivered to the purchaser during the period is eligible for an exemption from sales or use tax. For example, if a customer places an item on layaway in June and the item is delivered to the customer during the sales tax holiday period when the customer completes the layaway payments, the item is eligible for the exemption. Manufacturers' Coupons - A manufacturer's coupon does not constitute a reduction in sales price. A determination as to whether an item is eligible for the exemption is made before deducting the amount of the coupon. Rain Check - An item purchased pursuant to a rain check is not eligible for the exemption unless the item is delivered during the sales tax holiday period. If an eligible item is delivered to a purchaser during the holiday period pursuant to a rain check issued before the holiday period, the sale of the item is exempt from tax. Rebates - A rebate occurs after a sale and does not constitute a reduction in sales price. The amount of the rebate is not considered when determining whether an item is eligible for an exemption. For example, a customer buys a computer with a sales price of $3,550.00 and can obtain a $100.00 rebate upon mailing proof of purchase to the manufacturer. The computer is taxable because its sales price of $3,550.00 exceeds the per item limit of $3,500.00 for computers. Returns and Exchanges - If an eligible item that was purchased during the sales tax holiday period is returned after the holiday period and is replaced by the same type of item, no additional tax is due. If a retailer gives the purchaser a credit for an item purchased during the holiday period and the credit is used to purchase a different type of item after the holiday period, the combined State and county rates of tax apply to the sales price of the new item. For 30 days following the end of the sales tax holiday period, when a purchaser returns an item that would have been exempt if purchased in the holiday period, the retailer may not refund or give credit for any sales or use tax on the item unless the customer either provides a receipt or invoice showing payment of the tax or the retailer has other evidence to document payment of the tax. This procedure is for the purpose of establishing whether tax was paid on an item and is not intended to alter a retailer's policy for accepting returned merchandise. Sales by Remote Sellers - Sales of eligible items by mail order, telephone, Internet, or other remote means qualify for the exemption. For the purpose of the sales tax holiday, an item is eligible for the exemption if the following occurs during the holiday period: The customer orders the item and pays for the item. A customer pays for an item when the seller receives a credit card number, a debit authorization, a check, or a money order. The retailer accepts the order and takes an action to fulfill the order for immediate delivery. The actual delivery can occur after the holiday period. Most retailers are only able to change their tax application systems for an entire day and not for periods during the day. Remote sellers located in a time zone other than Eastern Daylight Time are allowed to use local time in the region in which the programming equipment is located for the purpose of determining the beginning and ending times for the holiday period. Shipping and Handling - Delivery charges, which include shipping and handling charges, are included in the sales price of an item sold and must be considered in determining whether an item is eligible for exemption. If multiple items are listed on an invoice, shipping and handling is allocated proportionally to each item to determine whether an item is eligible for exemption. If the shipping and handling charges are based on a flat rate per package and the amount charged is the same no matter how many items are included in a package, the retailer can allocate the charges to any of the items in the package rather than apportion the charges. Threshold - When the sales price of an item is greater than the ceiling threshold amount set for the sales price of an exempt item, whether $50.00, $100.00, or $3,500.00, sales or use tax is due on the entire charge for the item. The sales price is not reduced by the threshold amount. For example, if a coat is sold for $120.00, the entire sales price of the coat is taxable and not just the amount that exceeds $100.00. Units - Items that are generally sold as a unit, such as a pair of shoes, must continue to be sold as a unit and cannot be priced separately and sold as individual items to obtain an exemption. For example, if a pair of shoes is sold for $120.00, the shoes are not exempt because they exceed the per item clothing price limit of $100.00 per item. The retailer cannot price each shoe at $60.00 and thereby exempt the sale of the pair of shoes from sales tax. Questions If you have a question about this Directive, you may write to the Taxpayer Assistance Division of the North Carolina Department of Revenue at P.O. Box 25000, Raleigh, N.C. 27602. You may also call the Division at (919) 733-3661.