Md. Code Regs. 03.06.01.37

Current through Register Vol. 51, No. 22, November 1, 2024

Section 03.06.01.37 - Tax Free Week for Qualifying Clothing and Footwear Items

A. Definitions.

(1) In this regulation, the following terms have the meaning indicated.

(2) Terms Defined.

(a) "Accessory items" includes jewelry, watches, watchbands, handbags, handkerchiefs, umbrellas, scarves, ties, headbands, and belt buckles.

(b) "Clothing or footwear" means an article of wearing apparel designed to be worn on or about the human body.

B. Exempt Sales.

(1) The sales and use tax is not due on the sale of an article of clothing or footwear, excluding accessory items, if:

(a) The taxable price of the article is $100 or less; and

(b) The sale takes place during the 7-day period beginning at 12:01 a.m. on the second Sunday in August and continuing through 12 midnight the following Saturday.

(2) The exemption applies to the taxable price of each article of clothing or footwear selling for $100 or less, regardless of how many items are sold on the same invoice to a customer. For example, if a customer purchases two shirts for $80 each, both items qualify for the exemption, even though the customer's total purchase price ($160) exceeds $100.

(3) The exemption does not apply to the first $100 of an article of clothing or footwear selling for more than $100. For example, if a customer purchases a pair of pants costing $110, sales tax is due on the entire $110.

C. Taxable Sales. The exemption set forth in this regulation does not apply to:

(1) Any special clothing or footwear that is primarily designed for protective use and that is not normally worn except when used for the protective use for which it is designed (For example, football pads are primarily designed for protective use and are not normally worn except when used for those purposes and do not qualify for the exemption.);

(2) Accessory items;

(3) Taxable services performed on the clothing or footwear, such as alterations (For example, sales tax is due on alteration to clothing, even though the alterations may be sold, invoiced, and paid for at the same time as the clothing being altered. If a customer purchases a pair of pants for $90 and pays $15 to have the pants cuffed, the $90 charge for the pants is exempt, but tax is due on the $15 alterations charge.); and

(4) Purchases of items used to make or repair clothing or footwear, including fabric, thread, yarn, buttons, snaps, hooks, and zippers.

D. Articles Normally Sold as a Unit. Articles that are normally sold as a unit must continue to be sold in that manner. They cannot be priced separately and sold as individual items in order to qualify for the exemption. For example, if a pair of shoes sells for $150, the pair cannot be split in order to sell each shoe for $75 to qualify for the exemption. If a suit is normally priced at $225 on a single price tag, the suit cannot be split into separate articles so that any of the components may be sold for $100 or less in order to qualify for the exemption. However, components that are normally priced as separate articles may continue to be sold as separate articles and qualify for the exemption if the price of any article is $100 or less.

E. Sales of Sets Containing Both Exempt and Taxable Items.

(1) When exempt clothing or footwear is sold together with taxable merchandise as a set or single unit, the full price is subject to sales tax unless the price of the exempt clothing or footwear is separately stated. For example, if a boxed gift consisting of a shirt and tie is sold for a single price of $80, the full price of the boxed gift set is taxable because the tie is taxable and the sale price of the shirt is not separately stated.

(2) When exempt clothing is sold in a set that also contains taxable merchandise as a free gift, and no additional charge is made for the gift, the exempt clothing may qualify for this exemption. For example, a boxed set may contain a shirt and a free handkerchief. If the price of the set is the same as the price of the shirt sold separately, the item being sold is the shirt, which is exempt from tax if sold for $100 or less during the exemption period.

F. Discounts and Coupons.

(1) A retailer may offer discounts to reduce the sales price of an item. If the discount reduces the sales price of an item to $100 or less, the item may qualify for the exemption. For example, a customer buys a $150 dress and a $110 blouse from a retailer offering a 10 percent discount. After applying the 10 percent discount, the final sales price of the dress is $135, and the blouse is $99. The dress is taxable because the price is more than $100, and the blouse is exempt because the price is less than $100.

(2) When coupons are accepted by retailers as a part of the selling price of a taxable item, the value of the coupon is excludable from the tax as a cash discount, unless the retailer is reimbursed by a third party for the amount represented by the coupon. For example, if a customer purchases a pair of shoes priced at $110 with a retailer's coupon worth $10 off, the final sales price of the shoes is $100, and the shoes qualify for the exemption. If a customer purchases a pair of shoes priced at $110 with a manufacturer's coupon worth $10 off, the consideration paid for the pair of shoes totals $110 and the shoes do not qualify for the exemption.

G. Buy One, Get One Free or for a Reduced Price.

(1) The total price of items advertised as "buy one, get one free" or "buy one, get one for a reduced price" cannot be averaged in order for both items to qualify for the exemption. The application of the exemption depends on the actual price paid for the item. The examples in §G (2) and (3) of this regulation illustrate how these sales shall be handled.

(2) A retailer advertises pants as "buy one, get one free." The first pair of pants is priced at $120 and the second pair is free. The tax is due on the $120. Having advertised that the second pair is free, the store cannot ring up each pair of pants for $60 in order for the items to qualify for the exemption. However, if the retailer advertises and sells the pants for 50 percent off, selling each pair of $120 pants for $60, each pair of pants qualifies for the exemption.

(3) A retailer advertises shoes as "buy one at the regular price, get a second pair for half price." The first pair of shoes is sold for $110 and the second pair is sold for $55. Tax is due on the pair of shoes, but not on the $55 pair. Having advertised that the second pair is half price, the store cannot ring up each pair of shoes for $75 in order for the items to qualify for the exemption. However, if the retailer advertises the shoes for 25 percent off, thereby selling each pair of $110 shoes for $82.50, each pair of shoes qualifies for the exemption.

H. Rebates. Rebates occur after the sale and do not affect the sales price of an item purchased for purposes of the application of the exemption. For example, a customer purchases a sweater for $110 and receives a $12 rebate from the manufacturer. The retailer shall collect tax on the $110 sale price of the sweater.

I. Layaway Sales. A layaway sale is a transaction in which merchandise is set aside for future delivery to a customer who makes a deposit, agrees to pay the balance of the purchase price over a period of time, and, at the end of the payment period, receives the merchandise. Under Maryland law, the sale is made when the layaway agreement is entered into. Therefore, if the sale is entered into during the exemption period, the sale of eligible clothing may qualify for the exemption.

J. Rain Checks. Eligible items purchased during the exemption period using a rain check qualify for the exemption regardless of when the rain check was issued. However, issuance of a rain check during the exemption period does not qualify an eligible item for the exemption if the item is actually purchased after the exemption period.

K. Exchanges.

(1) If a customer purchases an item of eligible clothing or footwear during the exemption period and later exchanges the item for the same item (different size, different color, etc.), additional tax is not due even if the exchange is made after the exemption period.

(2) If a customer purchases an item of eligible clothing or footwear during the exemption period and, after the exemption period has ended, returns the item and receives credit on the purchase of a different item, the appropriate sales tax applies to the sale of the newly purchased item.

(3) If a customer purchases an item of eligible clothing or footwear before the exemption period and, during the exemption period, returns the item and receives credit on the purchase of a different item of eligible clothing or footwear, sales tax is not due on the sale of the new item if it is purchased during the exemption period.

(4) Examples.

(a) A customer purchases a $35 shirt during the exemption period. After the exemption period, the customer exchanges the shirt for the same shirt in a different size. Tax is not due on the $35 price of the shirt purchased after the exemption period.

(b) A customer purchases a $35 shirt during the exemption period. After the exemption period, the customer exchanges the shirt for a $35 jacket. Because the jacket was not purchased during the exemption period, tax is due on the $35 price of the jacket.

(c) During the exemption period, a customer purchases a $90 dress that qualifies for the exemption. Later, during the exemption period, the customer exchanges the $90 dress for a $150 dress. Tax is due on the $150 dress. The $90 credit from the returned item cannot be used to reduce the sales price of the $150 item to $60 for exemption purposes.

(d) During the exemption period, a customer purchases a $60 dress that qualifies for the exemption. Later, during the exemption period, the customer exchanges the $60 dress for a $95 dress. Tax is not due on the $95 dress because it was also purchased during the exemption period and otherwise meets the qualifications for the exemption.

L. Returned Merchandise. For a 30-day period after the temporary exemption period, when a customer returns an item that would qualify for the exemption, a credit for, or refund of, sales tax may not be given unless the customer provides a receipt or invoice showing tax was paid, or the retailer has sufficient documentation to show that tax was paid on the specific item. This 30-day period is set solely for the purpose of designating a time period during which the customer shall provide documentation showing that sales tax was paid on returned merchandise. The 30-day period is not intended to change a retailer's policy concerning the time period during which the retailer will accept returns.

M. Mail, Telephone, E-mail, and Internet Orders and Custom Orders.

(1) A sale of tangible personal property occurs when title or possession of the property is transferred in exchange for consideration. Therefore, an item of eligible clothing or footwear may qualify for this exemption if:

(a) The item is both delivered to and paid for by the customer during the exemption period; or

(b) The item is ordered and paid for by the customer and the order is accepted by the retailer during the exemption period for immediate shipment, even if delivery is made after the exemption period.

(2) An order is for immediate shipment when delayed shipment is not requested by the customer and notwithstanding that the shipment may be delayed because of a backlog of orders, or because stock is currently unavailable or on back-order by the company.

N. Shipping and Handling Charges.

(1) A separately stated shipping or delivery charge is not included in the sales price of the clothing or footwear to determine if the price of the item is $100 or less.

(2) A combined shipping and handling charge, however, is included as part of the sales price of the clothing or footwear, even if the combined charge is separately stated from the price of the item, and shall be added to the price of the clothing or footwear to determine if the price of the item is $100 or less. If multiple items are shipped on a single invoice, the shipping and handling charge shall be proportionately allocated to each item ordered, and separately identified on the invoice, to determine if any items qualify for the exemption.

(3) Examples.

(a) A customer orders a jacket for $95 during the exemption period. An additional charge of $10 is separately stated on the bill for shipping. The shipping charge is not included in the price subject to the tax and the price of the jacket is, therefore, $95 and qualifies for the exemption.

(b) A customer orders a jacket for $95 during the exemption period. A shipping and handling charge of $10 is added to the bill. The sales price of the jacket is $105 and tax is due on the full sales price.

(c) A customer orders a suit for $285 and a shirt for $95. The charge to deliver the items is $15. The $15 shipping and handling charge must be proportionately and separately allocated between the items: $285/$380 = 75 percent; therefore, 75 percent of the $15 shipping and handling charge, or $11.25, must be allocated to the suit, and separately identified on the invoice. The remaining 25 percent of the $15 shipping and handling charge, or $3.75, must be allocated to the shirt, and separately identified on the invoice. The sales price of the shirt is $95 plus $3.75, totaling $98.75; therefore, the shirt qualifies for the exemption.

O. Documenting Exempt Sales. The retailer is not required to obtain an exemption certificate on sales of eligible items during the exemption period. However, the retailer's records shall clearly identify the type of item sold, the date the item was sold, and the sales price of the item.

P. Reporting Exempt Sales. Special reporting procedures are not necessary to report exempt sales made during the exemption period. Sales shall be reported as currently required by law.

Q. Absorption of the Sales Tax.

(1) A vendor may assume and absorb all or any part of the sales and use tax on a retail sale and pay that tax on behalf of the buyer.

(2) The vendor shall separately state the tax from the sales price at the time of sale to purchaser.

(3) The vendor shall pay the tax with the return that covers the period in which the vendor makes the sale.

Md. Code Regs. 03.06.01.37

Regulation .37 effective December 24, 1954; repealed February 15, 1982 (9:3 Md. R. 220)
Regulation .37 adopted effective May 28, 2001 (28:10 Md. R. 946)
Regulation .37 amended as an emergency provision effective May 15, 2006 (33:15 Md. R. 1271); emergency status expired September 30, 2006
Regulation .37 amended as an emergency provision effective July 30, 2010 (37:18 Md. R. 1211); amended permanently effective September 6, 2010 (37:18 Md. R. 1213)