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When Are Fresh Christmas Trees Taxable Under State Laws?

  • Sales Tax
  • December 23, 2015 | Stephanie Faris

When it comes to Christmas trees, homeowners have very specific preferences. Either they pull the same artificial tree out of storage each year and plug it in or they go out in search of a fresh tree to haul home and set up. Both options have their pros and cons, with the low one-time cost of real trees sometimes winning over families on a budget. Over time, however, an artificial tree can be cheaper, since a family can use the same tree for multiple years.

Adding to that price difference is sales tax. While artificial trees always qualify for sales tax, there is one state considering exempting taxes on fresh-cut trees. The move is designed to encourage customers to buy from tree farms, which provides income to landowners throughout the country. But whether you’ll pay sales tax on your fresh Christmas tree depends on a couple of factors. Here’s what you should know about the taxability of Christmas trees.

Tax-Exempt Organizations

One way to get a tax-free tree is to purchase it from a nonprofit organization. Most states exempt nonprofits for the items they sell, especially if the entirety of the proceeds will be put toward their efforts. However, in some states, like Virginia, Christmas tree sales by nonprofits are considered retail sales, and thus subject to sales tax, because the legislature sees it as making "regular sales on a seasonal basis."

There are sometimes special requirements attached to these exemptions. Wisconsin, for example, only tax-exempts sales by nonprofit organizations that meet certain criteria. This includes a 20-day rule, which limits the number of days an organization can be engaged in a trade or business to 20 days or $25,000 in receipts. This only applies to the days of delivery, not the earlier period of time in which orders are taken from interested residents. With many churches and nonprofits buying trees for their own buildings, this issue can come up frequently during the season.

Encourage Natural Trees

One state that is feeling the impact of artificial tree sales is New York, which has seen natural tree sales plummet in recent years. In response, one politician is proposing a sales-tax exemption for the sale of trees, wreaths, and garlands in the state for one weekend at the beginning of December each year. This tax-free weekend is designed to encourage residents to purchase live trees early in the Christmas season to help out the state’s tree farmers.

With a growing number of mail-order Christmas tree services, businesses also must be mindful of which states require sales tax to be charged on shipping of Christmas items to consumers. In most states, retailers can charge sales tax on the cost of the tree only, but there are others where sales tax will be required on both the tree and the cost to ship the tree.

Businesses and nonprofits that sell Christmas trees each year may be required to collect sales tax on each tree they sell. While laws can vary from state to state, generally both artificial and real trees are subject to sales tax when sold by a for-profit organization to a customer. Nonprofit organizations that sell trees and nonprofits that purchase them for their own use may be exempt from sales tax on their purchases, depending on local regulations.

Avalara Author
Stephanie Faris
Avalara Author Stephanie Faris