Quick overview

State sales tax and tax holidays directly affect how you price products, collect tax at checkout, and report revenue. Sales tax rules are set at the state level (and sometimes by localities), so obligations can change depending on where you, your business, or your customers are located. Tax holidays temporarily exempt certain purchases from sales tax and usually target categories like school supplies, clothing, or disaster-preparedness items.

How sales tax typically affects sellers

  • Nexus first: you must determine if your business has a sales tax nexus in a state. Nexus can be created by physical presence (store, warehouse, employees) or by economic activity (sales thresholds for remote sellers). See our guide on avoiding nexus traps for digital products and subscriptions for nuances affecting online sellers.
  • Registration and permits: once you have nexus, register with the state’s Department of Revenue and obtain a sales tax permit before collecting tax. For a step-by-step process, consult our State Sales Tax Permits guide.
  • Collection and rates: collect applicable state and local rates on taxable sales. Rates and taxable items vary by state. Many states require sellers to collect tax based on the customer’s shipping address (destination-based) rather than the seller’s location.
  • Marketplace rules: marketplaces (Amazon, eBay, Etsy) often collect and remit tax under marketplace-facilitator laws, but you must know when a platform covers collection versus when you’re responsible.

How tax holidays work for sellers

  • Eligibility and scope vary: each state defines which items and price caps (if any) qualify for a holiday and sets the effective dates. Some states run annual back-to-school holidays; others add short, event-driven waivers.
  • Point-of-sale handling: your systems must apply exemptions correctly during the holiday window. That means product mapping, category flags, and price thresholds must be accurate to avoid over- or under-collecting tax.
  • Promotional opportunity: many retailers see increased traffic during tax-free periods. Plan inventory, staffing, advertising, and clear customer messaging in advance to capture demand.

Practical checklist for sellers (actionable steps)

  1. Determine nexus in each state where you have sales. If you sell online, test for economic thresholds in remote states.
  2. Register and keep permits current in states where you have nexus. Display or provide permit numbers per state rules where required.
  3. Configure your point-of-sale, cart, and accounting systems to: apply correct rates, recognize exempt items during tax holidays, and accept resale/exemption certificates when appropriate.
  4. Track marketplace facilitator treatment for each platform you use so you know who is collecting and remitting tax.
  5. Document every tax-free sale and keep exemption certificates for the period required by the state—missing paperwork is a common audit flag.
  6. Communicate with customers: advertise when items will be tax-exempt and clarify product eligibility and price caps to reduce confusion at checkout.
  7. Reconcile and remit on schedule: file returns and remit collected tax by the state’s deadlines to avoid penalties and interest.
  8. Use automation and compliance tools (sales tax engines or accounting software) to reduce errors and speed reporting.

Common seller mistakes to avoid

  • Assuming your home state is the only jurisdiction that matters. Remote sales can create nexus elsewhere.
  • Failing to update product taxability mapping before a tax holiday — that leads to incorrect tax collection or lost exemptions.
  • Overlooking local rates or special district taxes layered on top of the state rate.
  • Not keeping exemption or resale certificates on file, which can result in back-taxes and penalties.

Real-world considerations and examples

Retailers often see noticeable volume increases during tax-free weekends. That’s an opportunity—and a risk—if your systems aren’t prepared. For example, a seller who mapped school supplies as taxable missed applying the exemption and later had to issue refunds and absorb administrative costs. Conversely, sellers who coordinated marketing and inventory with tax holidays frequently gained market share that season.

Resources and where to check official rules

Internal guides you may find useful:

Final notes and disclaimer

This article explains general rules and practical steps as of 2025 based on public guidance. State rules and holiday programs change frequently. This content is educational and not individualized tax advice—consult a licensed tax professional or your state Department of Revenue for decisions specific to your business.