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Trick or Treat! Are Costumes Taxable?

  • Sales Tax
  • October 29, 2015 | Stephanie Faris

Halloween is tomorrow and with it, the usual array of people dressed as witches, nurses, and politicians. As Halloween retailers prepare to fill their shelves for the adults and kids who will soon arrive, it’s important that they straighten out the sales tax requirements before the shopping season kicks into high gear.

Believe it or not, some states allow a sales tax exemption for Halloween costumes, due to their classification as “clothing.” In states where clothing items are sales tax-exempt, it’s an important distinction. But with consumers now spending $6.9 billion on decorations, candy, and costumes, those dollars can add up to big tax collections for local governments.

Classification as Clothing

States like New York are proactive about Halloween costume tax requirements, eliminating costumes and rented formal wear from its clothing sales tax exemption. In those states, shoppers can get around paying sales tax by creatively putting together a costume that uses everyday clothing.

Sales tax laws related to other elements of a Halloween costume may vary, however. In Vermont, costumes are exempt but costume masks and other accessories aren’t. In Georgia, both costumes and masks are tax-exempt if sold as a set. If the mask is sold separately, that part of the costume is taxable but the clothing part of the costume is exempt.

States with Sales Tax

To sell costumes tax-exempt, the business doing the selling must be located in a state where clothing is sales tax-exempt. While this doesn’t guarantee Halloween costumes will be included in that exemption, in states with no Halloween costume exemption, sales tax will be charged on every costume sold.

When selling costumes to out-of-state customers, sales tax will depend on whether the state is an origin- or destination-based state. In origin-based states, where businesses are to charge sales tax based on the origin of the shipment rather than its destination, no sales tax would need to be charged. Destination-based states require businesses to base the sales tax on the location of the buyer.

In 37 states and the District of Columbia, clothing is fully taxed, which means this exemption can only apply to a select number of states. In five states (Minnesota, New Jersey, Pennsylvania, New Jersey, and Vermont), clothing is fully sales tax-exempt. Massachusetts exempts clothing purchases up to $175, New York clothing is tax exempt up to $110, and Rhode Island caps the exemption at $250 in purchases. Starting June 1, Connecticut residents enjoy a sales tax exemption for any clothing purchase under $50.

Controversial Decisions

The move to exempt Halloween costumes is controversial in some areas, especially New Jersey. In 2011, lawmakers criticized the exemption, with one party-supply shop admitting shoppers save between $7,000 and $8,000 in costume taxes in that store alone. Lawmakers questioned whether Dracula capes were a good use of sales tax breaks.

In some states, exemptions depend on which family member will be enjoying the costume. Pet clothing doesn’t qualify under the clothing sales tax exemptions in states with clothing exemptions, so pet costumes likely won’t be tax-exempt. Children’s costumes, however, are exempt in some states where adult costumes aren’t. Texas allows the sale of children’s costumes without paying sales tax, even though clothing isn’t tax-exempt in that state.

If your business is located in a state with clothing tax exemptions, check the laws to determine if Halloween costumes are defined as clothing in your state. Even without clothing exemptions, costumes may qualify for an exemption in certain states, so it’s important to check local laws.

Avalara Author
Stephanie Faris
Avalara Author Stephanie Faris