Are those flannel zebra jammies taxable? National Thrift Store Day – Wacky Tax Wednesday
- Sales and Use Tax
- August 16, 2017 | Gail Cole
If you’ve never been “thrifting,” Aug. 17 is the day to give it a try; it’s National Thrift Store Day. There are all types of second-hand stores in this country, from enormous national chains to online auction houses to small, local mom-and-pop shops. But while I suppose you could call any store that acquires used goods for resale a thrift store, there is a distinction between the different genres — and it affects sales tax.
“Thrift stores” are generally associated with a greater cause. For example, Goodwill provides job training for all sorts of people throughout the United States and Canada. While the organization receives gifts and grants as well as income from industrial and service contract work, retail sales from its physical and online thrift stores generate the bulk of its revenue: $4.16 billion out of a total of $5.71 in 2016. That money was used to place more than 313,000 people in jobs, help more than 31,000 people earn a credential, and provide job training and support for more than 36 million others.
As a nonprofit, Goodwill enjoys tax-exempt status under section 501(c)(3) of the Internal Revenue Code. It’s therefore eligible to receive tax-deductible contributions, as you’ve no doubt noticed if you’ve ever dropped off a donation. However, that doesn’t mean you don’t pay sales tax when shopping at Goodwill.
State sales tax laws differ with respect to thrift stores in general and nonprofit thrift stores in particular. Generally, taxable goods sold at retail by a nonprofit are subject to sales tax, but that’s not always the case. In California, for example, certain thrift stores can sell their goods tax-free.
Sales by California nonprofit thrift stores
California has specific rules for different types of charitable thrift stores. For example, through Jan. 1, 2019, taxable goods sold by a thrift store “benefiting individuals with HIV or AIDS” qualify for a sales tax exemption so long as the store is exempt from state income tax under Revenue and Taxation Code Section 23701d and spends at least 75 percent of its net revenues on the provision of certain hospice, medical, or social services to individuals with AIDS or HIV. The state provides a similar exemption (through Dec. 2018) for qualifying thrift stores that earn revenue to fund services for individuals suffering from other chronic diseases.
In addition, California sales and use tax doesn’t apply to the consumption, sale, storage, or use of taxable goods sold by thrift stores located on military bases, provided they’re “operated by a designated entity” and are working in partnership with the U.S. Department of Defense to provide educational, financial, and other assistance to members of the Armed Forces of the U.S., eligible family members, and survivors in need. That exemption is set to expire on Jan. 1, 2024. For more details, see the California State Board of Equalization publication, Nonprofit Organizations.
Sales by nonprofit thrift shops in Arkansas, Florida, Illinois, and New York
Like California, other states sometimes exempt certain thrift shop sales. For example, while sales of tangible personal property are generally subject to Florida sales tax, Florida provides an exemption for sales by thrift shops owned and operated by religious institutions.
On the other hand, thrift shops owned and operated by religious institutions in New York must collect and remit sales tax, as must those owned and operated by charitable, educational, and other organizations. However, particular items (such as clothing and footwear costing less than $110) may be exempt. Certain consumers may also be eligible for a specific exemption.
In Illinois, organizations that are exclusively charitable, educational, or religious in nature and enjoy state tax-exempt status may make tax-exempt sales in specific situations. However, thrift shop sales don’t qualify. Generally, nonprofit organizations in Illinois must collect sales tax on all retail sales.
Arkansas makes a distinction between thrift shop sales of donated new items and sales of donated used items. According to the Arkansas Department of Finance and Administration, a nonprofit charitable thrift store is exempt from charging tax on sales of used items but must collect tax on new items, even those that were donations. Under Arkansas Code Section 26-52-430(a), the exemption “shall not extend to sales of new tangible personal property by the charitable organization if the sales compete with sales by for-profit businesses.”
For-profit thrift stores
Not all thrift stores are nonprofits. Although a “revolutionary recycler” that keeps more than 700 million pounds of used goods out of the nation’s landfills each year, Value Village is for profit. It says it supports nonprofits by paying them for donated goods. States generally tax sales by for-profit thrift stores unless a specific exemption applies.
Do thrift shops near you charge sales tax? Go shopping and see.
Need a little motivation to visit a thrift shop on Aug. 17? Give Thrift Shop a listen. In addition to making you want to dance through your neighborhood Goodwill, Macklemore and Ryan Lewis will leave you pining for flannel zebra jammies and onesies with socks.
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