Business News | Sales Tax Holiday

Public Act (P.A.) 102-0700 creates a state sales tax holiday on qualifying items effective August 5, 2022, through August 14, 2022.

What is the state sales tax holiday?
The state sales tax holiday is a ten-day period during which consumers can purchase certain clothing and school-related items and pay sales tax at a reduced rate. The state’s portion of sales tax due throughout the holiday is reduced by 5 percent (5.00%) from 6.25 percent (6.25%) to 1.25 percent (1.25%).
Items include qualifying clothing and footwear with a retail selling price of less than $125 per item and certain school supplies used by students in the course of study. School supplies are not subject to the $125 threshold. For a list of qualifying and nonqualifying items, see Page 3.

What action must the retailer take?
Retailers must adjust their method of collecting sales tax so that beginning on August 5, 2022, and ending at the close of business August 14, 2022, they will collect the reduced tax rate on qualifying items.
The sales tax rate that retailers must use during the holiday period is the
rate currently in effect on the date of the holiday minus 5.00 percent (5.00%).

For example:
If your sales tax rate is: 9.75%
Reduced amount (state portion): 5.00%
Sales tax rate during the holiday period: 4.75%
If your sales tax rate is: 6.50%
Reduced amount (state portion): 5.00%
Sales tax rate during the holiday period: 1.50%

How do I handle special sales during the sales tax holiday?
Coupons and discounts
To determine whether the eligible clothing item’s retail selling price is below $125, retailers must look at the price after the unreimbursed coupon or store markdown but before a reimbursed coupon.

Bundled sales
Qualifying items bundled with items that do not qualify for the state sales tax holiday rate will be subject to the reduced tax rate only if the value of the qualifying items exceed the value of the non-qualifying items. Bundled sales are limited to $125 for one bundled sale that includes qualifying clothing/shoes.

Splitting items
Articles normally sold as a single unit must continue to be sold as such to determine whether the selling price is within the state sales tax holiday price threshold. For example, a pair of shoes with a selling price of $140 cannot be sold separately so the sales price of each shoe is within the sales tax holiday price threshold.

Rain checks
Qualifying items purchased during the holiday with a rain check issued prior to the state sales tax holiday will qualify for the reduced sales tax rate. Qualifying items purchased after the state sales tax holiday with rain checks issued during the holiday are not eligible for the reduced tax rate.

Exchanges
Retailers do not need to collect any additional tax if a customer purchases a qualifying item during the state sales tax holiday, but after the holiday exchanges it for a different size, color, or other feature at the same or lower price.

If a customer purchases a qualifying item during the state sales tax holiday, but after the holiday returns the item and receives credit on the purchase of a different item, they will receive credit for the holiday tax paid. The customer is charged the full sales tax rate on the purchase of a new item. If a customer purchases a qualifying item before the state sales tax holiday period, but returns it during the sales tax holiday period and receives credit on the purchase of a different item that is eligible, the reduced rate of sales tax is due if the replacement item is purchased during the holiday.

Back orders
Regardless of when an item is delivered to a customer, retailers must collect the reduced rate of tax on any qualifying item for which a customer has paid in full during the state sales tax holiday period.

Returns
Retailers may establish their own policies for time periods within which to accept returns of qualifying items. However, for a 60-day period immediately after the Sales Tax Holiday Period, if a customer returns a qualifying item, the retailer must only credit or refund sales tax at the reduced rate unless the customer provides a receipt or invoice showing tax was paid at the usual general merchandise rate, or the retailer has documentation to show tax was paid at the usual general merchandise rate on the item. Retailers must file Form ST-1-X, Amended Sales and Use Tax Return (and, if applicable, Form ST-2-X, Amended Multiple Site Form), and Schedule GT-X, Amended Sales and Use Tax Holiday and Grocery Tax Suspension Schedule, to make a claim for credit for tax paid to IDOR that was subsequently refunded to a customer.

How do I report qualifying sales made during the state sales tax holiday?
Schedule GT, Sales and Use Tax Holiday and Grocery Tax Suspension Schedule, was created for retailers to report sales of qualifying items sold during the sales tax holiday. This schedule should be filed with your From ST-1, Sales and Use Tax and E911 Surcharge Return (and, when applicable, Form ST-2, Multiple Site Form). Form ST-1 has not changed. Retailers should continue to report their normal taxable sales, including sales of qualifying items, on Lines 4a and 4b, Lines 6a and 6b, or Lines 12a and 12b, of Form ST-1 (and, when applicable, Form ST-2) and will then use Lines 2a and 2b, Lines 3a and 3b, or Lines 4a and 4b on Schedule GT to calculate a credit against the tax reported on those lines for the tax they are not collecting during the state sales tax holiday. When determining the discount allowed for a timely filed return, retailers are authorized to include the amount of tax on receipts that would have been due at the rate in effect for their location(s) prior to reducing the state’s portion of sales tax due on sales tax holiday items.