Unhappy Holidays? Sales Tax Holidays Challenge Exemption Certificate Management Activities

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As summer vacation season approaches, tax groups are having a difficult time planning for the holidays. I’m referring to the ever-expanding use of sales tax holidays at the state and local levels – moves that pose challenges to sales tax exemption certificate management capabilities. 

I heard numerous tax leaders discuss this concern at one of the recent Vertex’s user group meetings. The issue is that it’s becoming increasingly difficult to keep pace with the number of tax holidays and exemptions. It can also be tricky distinguishing between temporary tax holidays and permanent exemptions. Managing sales tax exemptions also remains a top challenge, especially as the number of exemption certificates a tax group needs to manage grows. 

These challenges hit home for me when I read about the sales tax holidays Florida recently proposed. The legislature issued a 1,725-word press release last month to detail all of the sales tax holidays and sales tax exemptions included in a bill intended to deliver more than $1 billion in broad-based tax relief to state residents’ businesses. Guess which of the following are contained in the bill: 

  • A back-to-school sales tax holiday;
  • A disaster preparedness sales tax holiday;
  • A “freedom summer” tax holiday on recreational items;
  • A skilled worker tools sales tax holiday;
  • A temporary sales tax exemption on gas stoves and energy-efficient appliances; and
  • A freeze on cell phone and cable-TV sales taxes.

If you answered, “all of the above,” you aced the quiz. And there’s more. This legislative proposal also would 1) create permanent sale tax exemptions for a range of goods including baby and toddler products, hygiene products, and firearm safety devices; and 2) provide property tax relief through more than a half-dozen different mechanisms.  

Providing tax relief to residents and businesses is a laudable goal, and one I share. But the devil is in the details, and the growing use of sales tax holidays and exemptions often have unwelcome side effects that complicate life for corporate tax groups. 

The Tax Foundation identifies and explains these shortcomings – including failing to promote sufficient economic growth, misleading consumers about savings, fostering greater tax complexity, and distracting policymakers and tax payers from more efficient tax reforms – in its most recent rundown of sales tax holidays. “Sales tax holidays neither promote economic growth nor increase purchases,” the Tax Foundation’s report concludes. “They create complexities for all involved while inserting the political process into consumer decisions. By distracting high-tax states from addressing real problems with their tax systems, holidays undermine efforts to provide legitimate relief to consumers in general and low-income individuals in particular. Sales tax holidays are not sound tax policy.” By the way, this report appeared last July, so I’m looking forward to seeing the Tax Foundation’s 2023 report on sales tax holidays this summer.

As more sales tax holidays and exemptions arise, tax groups should keep tabs on the implications of a narrowing tax base. It also may be prudent to consider an automated exemption certificate management solution to electronically store, process and manage certificates.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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