A Motion by Rhode Island to Amend the SSUTA Relating to Caps and Thresholds

A motion by Rhode Island to the Governing Board to adopt best practices relating to essential clothing.

Best Practices Number ______Essential Clothing

Best Practice 1.1

A state utilizes price thresholds set by such state for the taxation or exemption of clothing by only exempting “essential clothing”. Such state electing to tax "essential clothing" differently from "clothing" exempts the entire sales price of any individual item of clothing below its dollar threshold. Such state will tax the full sales price of each item exceeding the threshold.

Examples:

1. A customer purchases an item of clothing for a sales price below the state’s threshold. No tax applies to the amount of the sales price.

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $250.00 or less.
A retailer sells a shirt at a price of $60.00.
Sale of the shirt is exempt from the sales and use tax because the item is less than $250.00.

2. A customer purchases an item of clothing for a price in excess of the state’s threshold. The tax applies to the full amount of the sales price because the price exceeds the threshold.

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $250.00 or less.
A retailer sells a pair of shoes at $300.00.
Sales price of the item is more than $250.00, the tax applies to the sales price of $300.00.

3. A customer purchases three separate items of clothing. The price of each item is below the state’s threshold; however the combined price of all the items exceeds the threshold. No tax applies because the sales price of each individual item is less than the state’s price threshold.

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $250.00 or less.
A retailer sells five (5) shirts at $60.00 each for a total of $300.00.
Sales price of each individual shirt is less than $250.00; therefore, the sale of all five (5) shirts are exempt from the sales and use tax.

4. Articles of clothing that are normally sold as a single unit must continue to be sold in that manner. The articles of clothing cannot be separated and sold as individual items to qualify for the exemption.

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $250.00 or less.
A suit normally sells for $400.00.
The retailer cannot sell the pants for $200.00 and the suit coat for $200.00 in order to qualify for the exemption. (if the pants and the coat are normally sold as separate items with separate price tags, the full amount of the exemption may apply to each item sold)
Because the sales price of the suit is more than $250.00, the tax applies to the entire sales price of $400.00.

5. If a seller offers "buy one, get one free" or "two for the price of one" on clothing, the purchase shall qualify for the exemption if the sales price is below the state’s threshold. However, if a seller offers a "buy one, get one for a reduced price" the two prices cannot be averaged to qualify both items for the exemption.

Example:

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $100.00 or less.
A seller offers "buy one, get one free" on a pair of shoes.
The first pair of shoes has a sale price of $99.00 and the second pair is free.
Both pairs of shoes will qualify for the exemption because the sales price of the first pair of shoes does not exceed the threshold of $100.00.

Example:

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $100.00 or less.
A coat is purchased for $120.00 and a second coat is purchased for half price ($60.00) at the time the first coat is purchased.
The second coat will qualify for the exemption, but the tax will be due on the first coat. In this example, the sales price of the items may not be averaged in order to qualify for the exemption.

6. Discounts, coupons, and rebates. The application of the exemption to discounts, coupons and rebates extended by a seller on essential clothing is illustrated by the following examples:

(a) Discounts offered by the retailers at the time of sale and which are taken by the customer at the time of sale affect the sales price of the essential clothing.

Example:

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $100.00 or less.
A seller sells a pair of jeans with a sales price of $110.00 and offers to discount the item 10% at the time of sale.
The exemption would apply because the actual sales price of the jeans is $99.00.

(b) Coupons offered by the seller and used at the time of sale to reduce the sales price of essential clothing affect the sales price of the purchased item.

Example:

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $100.00 or less.
A seller offers a reduction in sales price of $10.00 through a store coupon for an item of clothing with a sales price of $100.00.
The exemption would apply to the purchase because the seller's actual sales price to the customer is $90.00.

(c) Coupons offered by a manufacturer that are used to pay for essential clothing do not affect the sales price of the purchased item.

Example:

A state’s exemption threshold for the purchase of essential clothing is limited to clothing with a sales price of $100.00 or less.
A customer provides a seller a manufacturer's coupon for $20.00 for a pair of tennis shoes with a sales price of $110.00, the exemption would not apply.
The sales price, as defined in the SSUTA is $110.00 which is in excess of the threshold.

Best Practice 1.2

A state utilizes price caps or thresholds set by such state for the taxation or exemption of clothing by exempting only a portion of the sales price of clothing. Such state will exempt that sales price of each item of clothing up to the threshold amount. Such state will tax the portion of the sales price of each item of clothing above the threshold.

Examples:

A customer purchases an item of clothing for a sales price below the state’s threshold.

No tax applies to the amount of the sales price.

A state’s sales and use tax exemption threshold for the purchase of clothing is limited to $250.00 of the sales price.
A retailer sells a shirtat a price of $60.00.
Since the sales price of the item is less than $250.00, the sale of the shirt is exempt from the sales and use tax.

A customer purchases an item of clothing for a price in excess of the state’s threshold.

The tax only applies to the amount of the sales price that exceeds the threshold.

A state’s exemption threshold for the purchase of clothing is limited to $250.00 of the sales price.
A retailer sells a pair of shoesat $300.00.
Sales price of the item is more than $250.00, the tax applies to the $50.00 in excess of the threshold.

3. A customer purchases three separate items of clothing. The price of each item is below the state’s price threshold; however the combined price of all the items exceeds the threshold. No tax applies because the sales price of each individual item is less than the state’s price threshold.

A state’s exemption threshold for the purchase of clothing is limited to $250.00 of the sales price.
A retailer sells five (5) shirts at $60.00 each for a total of $300.00.
Sales price of each item is less than $250.00, the sale of all five (5) shirts are exempt from the sales and use tax.

A state’s exemption threshold for the purchase of clothing is limited to $250.00 of the sales price.
A suit normally sells for $400.00. The retailer cannot sell the pants for $200.00 and the suit coat for $200.00 in order to qualify for the exemption. (if the pants and the coat are normally sold as separate items with separate price tags, the full amount of the exemption may apply to each item sold)
Because the sales price of the suit is more than $250.00, the tax applies to the $150.00 in excess of the threshold.

5. If a seller offers "buy one, get one free" or "two for the price of one" on clothing, the portion of the sales price below the threshold will qualify for the exemption. However, if a seller offers a "buy one, get one for a reduced price" the two prices cannot be averaged to qualify the full sales price of both items for the exemption.

Example:

A state’s exemption threshold for the purchase of clothing is limited to $100.00 of the sales price.
A seller offers "buy one, get one free" on a pair of shoes. The first pair of shoes has a sale price of $99.00 and the second pair is free.
Both pairs of shoes will qualify for the exemption because the first pair of shoes does not exceed the sales price of $100.00.

Example:

A state’s exemption threshold for the purchase of clothing is limited to $100.00 of the sales price.
A coat is purchased for $120.00 and a second coat is purchased for half price ($60.00) at the time the first coat is purchased.
The sales price of the second coat will qualify for the exemption, but the tax will be due on the $20.00 above the price threshold on the purchase of the first coat. In this example, the sales price of the items may not be averaged in order to qualify for the exemption.

6. The application of the exemption to discounts, coupons and rebates extended by a seller when a state exempts only a portion of the sales price of clothing is illustrated by the following examples:

(a)Discounts offered by the retailers at the time of sale and which are taken by the customer at the time of sale affect the sales price of the clothing.

Example:

A state’s exemption threshold for the purchase of clothing is limited to $100.00 of the sales price.
A seller sells a pair of jeans with a sales price of $110.00 and offers to discount the item 10% at the time of sale.
The exemption would apply because the actual sales price of the jeans is $99.00.

(b)Coupons offered by the seller and used at the time of sale to reduce the sales price of clothing affect the sales price of the purchased item.

Example:

A state’s exemption threshold for the purchase of clothing is limited to $100.00 of the sales price.
A seller offers a reduction in sales price of $10.00 through a store coupon for an item of clothing with a sales price of $100.00.
The exemption would apply to the purchase because the seller's actual sales price to the customer is $90.00.

(c)Coupons offered by a manufacturer that are used to pay for clothing do not affect the sales price of the purchased item.

Example:

A state’s exemption threshold for the purchase of clothing is limited to $100.00 of the sales price.
A customer provides a seller a manufacturer's coupon for $20.00 for a pair of tennis shoes with a sales price of $110.00; the sales tax would apply to the $10.00 in excess of the state’s threshold.
The sales price, as defined in the SSUTA, is $110.00 which is in excess of the threshold.