SN 2000(8)
One-Week Sales and Use Tax Exclusion
in August for Clothing and Footwear Under $300
This publication has been superseded by SN 2001(6)
PURPOSE: This Special Notice describes new legislation providing a one-week period in August each year when clothing and footwear costing less than $300 per item are excluded from sales and use taxes.
EFFECTIVE DATE: The new legislation is effective July 1, 2000. It applies each year from the third Sunday in August through the following Saturday. This year, the exclusion is in effect from Sunday, August 20, 2000, through Saturday, August 26, 2000.
STATUTORY AND REGULATORY AUTHORITY: 2000 Conn. Pub. Acts 170, §15; Conn. Gen. Stat. §12-412(47), as amended by 2000 Conn. Pub. Acts 170, §3; and Conn. Agencies Regs. §12-426-30.
NONTAXABLE SALES OF CLOTHING OR FOOTWEAR: Sales and use taxes do not apply to sales or purchases of clothing or footwear costing less than $300 during the one-week period that begins on the third Sunday in August and ends on the following Saturday (the "exclusion week"). This year, the exclusion week for clothing under $300 begins Sunday, August 20, 2000, and extends through Saturday, August 26, 2000.
The one-week exclusion applies to sales made by Connecticut retailers, sales made by out-of-state retailers required to collect Connecticut use tax on sales to Connecticut customers, and purchases by Connecticut customers on which they would otherwise be required to self-assess use tax.
Exclusion applies to each item sold. The exclusion applies to each item sold, regardless of how many items are sold to a customer on the same invoice. However, the exclusion does not apply to any portion of the price of an item that costs $300 or more.
Articles normally sold as a unit. Articles that are normally sold as a unit must continue to be sold in that manner (for example, pairs of shoes); they cannot be separated and sold as individual items, to qualify for the exclusion.
Example: A suit normally sells for $400. The retailer cannot sell the pants for $200 and the suit coat for $200 during the exclusion week, to qualify the suit for the exclusion. However, if the pants and the coat are normally sold as separate items, with separate price tags, the exclusion may apply to each item sold.
Exclusion week in lieu of regular exemption. The exclusion week replaces the regular exemption for articles of clothing or footwear costing less than $75, under Conn. Gen. Stat. §12-412(47), which remains in effect for all other periods. (The regular exemption was increased from items costing less than $50 to items costing less than $75 on July 1, 2000.)
"CLOTHING OR FOOTWEAR" DEFINED: The annual exclusion for articles of clothing or footwear costing less than $300 includes most articles of clothing or footwear intended to be worn on or about the human body.
Items not subject to the exclusion. For purposes of the exclusion, "clothing or footwear" does not include:
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Any special clothing or footwear primarily designed for athletic activity or protective use and which is not normally worn except when used for the athletic activity or protective use for which it was designed, and
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Jewelry, handbags, luggage, umbrellas, wallets, watches, and similar items carried on or about the human body but not worn on the body in the manner characteristic of clothing.
The items not included in the definition of clothing or footwear are the same as in Conn. Gen. Stat. §12-412(47), the exemption for clothing and footwear costing less than $75 per item. (See Conn. Agencies Regs. §12-426-30. For a list of qualifying clothing and footwear see also Special Notice 92(3.1).)
CASH DISCOUNTS, COUPON SALES, AND REBATES: Tax does not apply to "cash discounts allowed and taken on sales" or to "the full face value of any coupon used by a purchaser to reduce the price paid to a retailer for an item of tangible personal property, whether or not the retailer will be reimbursed for such coupon, in whole or in part, by the manufacturer of the item of tangible personal property or by a third party." See Conn. Gen. Stat. §12-407(8) and (9).
Cash discounts are price reductions that a store offers its customers, such as back-to-school sales. Tax is calculated on the sales price net of all price reductions. To determine whether an item of clothing or footwear costs less than $300, the retailer should use the reduced sales price after the cash discount is deducted from the full or original sales price.
Example: A retailer sells a suit for $350. The retailer offers a 20% discount on suits during the exclusion week. The sales price of the suit is reduced to $280 after the discount is taken. The suit is not taxable if it is sold during the exclusion week because it costs less than $300.
Coupons entitle a purchaser to an immediate reduction in the sales price of an item when the coupon is presented to the retailer. Tax is calculated on the sales price net of all price reductions from coupons. A retailer, a manufacturer, or another third party may issue coupons. To determine whether an item of clothing or footwear costs less than $300, the retailer should use the sales price after the face value of the coupon (or any higher value given to the coupon by the retailer) is deducted from the original sales price.
Example: A retailer sells a suit for $360. The retailer has a 25% off coupon in its advertising flyer, which the customer presents when purchasing the suit. The reduced amount after the coupon is used is $270. The suit is not taxable if it is sold during the exclusion week because it costs less than $300.
"Buy one, get one free" and similar offers. If a retailer offers "buy one, get one free" or "two for the price of one" on items of clothing or footwear during the exclusion week, the tax exclusion applies, as long as the total sales price for both items is less than $300.
However, if a retailer offers "buy one, get one for a reduced price," the two prices cannot be averaged to qualify both items for the exclusion.
Example: A retailer sells a coat for $350 during the exclusion week, and offers a second coat for half price when bought with the first coat. The first coat costs $350 and does not qualify for the tax exclusion. The second coat costs $175 (half price) and does qualify for the tax exclusion. Together the two coats cost $525. The retailer cannot average the price of the two coats, to $262.50 apiece, to qualify both coats for the exclusion.
Rebates, unlike discounts and coupons, do not reduce the sales price of an item. The tax applies to the sales price of an item before the customer obtains a rebate from a manufacturer or third party. The customer obtains a rebate separately from the retail sale of the item.
Therefore, the sales price of an article of clothing or footwear before any rebate is the amount the retailer must use to determine if an item sold during the exclusion week costs less that $300.
SHIPPING AND HANDLING CHARGES: Generally, tax applies to "any charges by the retailer to the purchaser for shipping or delivery." See Conn. Gen. Stat. §12-407(8) and (9). However, no tax is due on shipping and delivery charges in connection with any sale that is not taxable before adding the shipping and delivery charges.
The addition of shipping and delivery charges to an item of clothing or footwear costing less than $300 sold during the exclusion week will not render the item taxable, even if the price of the item exceeds $300 after the shipping and delivery charges are added.
"Handling" charges. Whenever handling charges and shipping charges both appear on the same invoice, whether lumped together or separately stated, the handling charges are considered part of shipping and delivery charges. However, when handling charges appear alone on an invoice without shipping charges, the handling charges are not considered shipping and delivery charges. Instead, the handling charges are service charges that are part of the sales price of the item sold.
Example: An item of clothing sold during the exclusion week costs $295. The customer is charged an additional $20 "shipping and handling" fee, bringing the total to $315. The $295 sales price for the clothing item is not subject to tax. The $20 shipping and handling charge is also not taxable.
Example: An item of clothing sold during the exclusion week costs $295. The customer is charged an additional $10 "handling" fee, but no shipping or delivery fee. The sales price for the clothing item is $305 and the entire amount is taxable.
LAYAWAY SALES: A layaway sale is a sale where a retailer sets aside an item for future delivery to a customer who makes a deposit and agrees to pay the balance of the sales price before taking delivery or possession of the item. The sale is deemed to have been made when the customer puts a deposit on the item and the retailer removes it from inventory.
Layaways during the exclusion week. If a customer puts an article of clothing or footwear that costs less than $300 on layaway during the exclusion week, the item qualifies for the tax exclusion, and none of the customer’s payments on the item are taxable, even if they are made after the exclusion week. The item will not be taxable when the customer takes delivery or possession of it.
The selling price of an article of clothing or footwear plus any additional charges that the retailer imposes or will impose for a layaway sale are combined to determine whether the item costs less than $300.
Layaways prior to the exclusion week. If an article of clothing or footwear was put on layaway prior to the exclusion week and the customer takes possession of the item during the exclusion week, the item does not qualify for the exclusion, even if its total cost is less than $300.
MAIL ORDER, TELEPHONE, AND INTERNET SALES: Tax does not apply to the sale of an article of clothing or footwear costing less than $300 that is sold during the exclusion week by mail, telephone, or over the Internet for immediate shipment.
An order is considered to be for "immediate shipment" when delayed shipment is not requested by the customer. If the retailer delays shipment of an order because of a backlog, or because stock is currently unavailable, the order is still for immediate shipment.
The retailer must accept the order during the exclusion week, even if delivery is not to be made during that week. A retailer accepts an order when the retailer has taken an action to fill the order. Actions to fill an order include placing an in-date stamp on a mail order or assigning an "order number" to a telephone or Internet order. (See rules for shipping and handling charges.)
MONOGRAMMING AND ALTERATIONS:
Monogramming is a taxable process and includes activities such as sewing, printing, imprinting, and silk screening. Monogramming performed on an article of clothing or footwear by a retailer or third party after the item has been purchased is separately taxable, even if the item itself was not taxable.
Charges for monogramming made by a retailer at the time an item is purchased are part of the sales price, and must be added to the price of the item to determine the full sales price. Therefore, if a customer purchases an article of clothing or footwear during the exclusion week and pays the retailer for monogramming at the time of purchase, the sale is not taxable if the total charge, including monogramming, is less than $300.
Clothing alterations are not taxable, whether done by the retailer of the clothing or by a third party. If a retailer charges separately for alterations to an article of clothing when the item is purchased, the alteration charges are not part of the sales price of the item. Therefore, if a customer purchases an article of clothing during the exclusion week, the sale is not taxable if the cost of the item before the addition of separately stated alteration charges is less than $300.
CUSTOM ORDERS: If a customer places an order with a retailer to custom make an article of clothing or footwear costing less than $300, the item is not taxable if delivery is made to the customer during the exclusion week, regardless of when the order was placed. (Conn. Gen. Stat. §12-407(2)(g) specifies that the sale of a custom-made item takes place when title passes to an item that "has been produced" to the customer’s order.)
For purposes of this Special Notice, delivery is made to the customer when the customer picks up the item at the retailer’s business location or when the retailer places the custom order in shipment to the customer through the United States mail or by common carrier.
If delivery of a custom-made item is made to the customer after the exclusion week, the sale is taxable. (If the article of clothing or footwear costs less than $75, it is exempt from tax under Conn. Gen. Stat. §12-412(47).)
CLOTHING OR FOOTWEAR RENTALS: The rental of an article of clothing or footwear costing less than $300 during the exclusion week is not taxable. The date the customer takes possession of the rented clothing or footwear determines if the rental is made during the exclusion week, even if the customer returns the item to the retailer after the exclusion week.
If the rental period begins before the exclusion week, the exclusion does not apply even if the item is returned to the retailer during the exclusion week. (If the rental cost of an article of clothing or footwear is less than $75, it is exempt from tax under Conn. Gen. Stat. §12-412(47).)
Example: A customer rents a tuxedo for $105 from a formal wear rental shop. The customer picks up the tuxedo from the shop on Friday, August 18, 2000, and returns the tuxedo to the shop on Monday, August 21, 2000. The tuxedo rental is taxable.
Example: A customer rents a tuxedo for $105 from a formal wear rental shop. The customer picks up the tuxedo from the shop on Friday, August 25, 2000, and returns it to the shop on Monday, August 28, 2000. The tuxedo rental is not taxable.
RAIN CHECKS: An article of clothing or footwear costing less than $300 that is purchased during the exclusion week using a rain check is not taxable.
If a retailer issues a rain check to a customer during the exclusion week for an article of clothing or footwear costing less than $300 and the customer purchases the item after the exclusion week has ended using the rain check, the item is taxable. (If the article of clothing or footwear costs less than $75, it is exempt from tax under Conn. Gen. Stat. §12-412(47).)
EXCHANGES: When a customer purchases an article of clothing or footwear costing less than $300 during the exclusion week and the customer exchanges the item for a like item after the exclusion week, the exchange is not taxable provided the sales price of the like item is also less than $300. A like item is the same item with a different style, different size, or different color (such as a shirt for a shirt).
If the article of clothing or footwear costing less than $300 is exchanged after the exclusion week for a different type of clothing item (not a like item), the exclusion does not apply, even if the original purchase was made during the exclusion week and cost less than $300. (If the article of clothing or footwear costs less than $75, it is exempt from tax under Conn. Gen. Stat. §12-412(47).)
If a customer purchases an article of clothing or footwear costing less than $300 during the exclusion week, then returns it during the exclusion week for a refund or credit toward another item costing more than $300, the customer may not use the refund or credit to reduce the price of the second item, even if the customer purchases the second item during the exclusion week. The second item is taxable.
Example: A customer purchases a short sleeve cotton blend dress during the exclusion week for $120 and exchanges it after the exclusion week for a long sleeve silk dress costing $200. The second dress is not taxable because the customer exchanged like items and both items cost less than $300.
Example: A customer purchases a shirt during the exclusion week for $80 and exchanges it after the exclusion week for a pair of pants costing $85. The pants are taxable because the customer did not exchange like items.
Example: A customer purchases a suit for $290 during the exclusion week. Later in the exclusion week, the customer returns the suit and receives full credit toward the purchase of another suit, costing $350. The second suit is taxable.
REPORTING REQUIREMENTS: Sales of clothing and footwear costing less than $300 are reported on Line 1 of Form OS-114, Sales and Use Tax Return. The nontaxable sales of clothing and footwear sold during the exclusion week are deducted on Line 79 of Form OS-114.
EFFECT ON OTHER DOCUMENTS: None affected.
EFFECT OF THIS DOCUMENT: A Special Notice is a document that announces a new policy or practice in response to changes in State or federal laws or regulations or to judicial decisions. A Special Notice indicates DRS’s informal interpretation of Connecticut tax law and may be referred to for general guidance by taxpayers or tax practitioners.
SN 2000(8)
Sales and Use Taxes
Clothing under $300
Issued 07/14/00