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Ready for back to school shopping? According to the National Retail Federation’s annual survey conducted by Prosper Insights & Analytics, total spending for K-12 schools and college reached $82.8 billion in 2018, nearly as high as 2017’s $83.6 billion. With those expenses looming, parents are often looking for opportunities to save some cash. One of the ways that they do it? Sales tax holidays.

Here’s a look at states offering taxpayers a break on sales tax for back-to-school items this year:

  • Alabama (July 19-21) Exemptions apply to purchases of clothing ($100 or less per item), computers (single purchase up to $750), school supplies, art supplies or school instructional materials ($50 or less per item) and books ($30 or less per item). Not all counties and municipalities are participating, so check the state link for a list of participating locations.
  • Arkansas (August 3-4) Exemptions apply to purchases of clothing and footwear ($100 or less, per item), clothing accessories ($50 or less per item), school supplies, art supplies, and school supplies. All retailers are required to participate and may not charge tax on items that are legally tax-exempt during the Sales Tax Holiday.
  • Connecticut (August 18-24) Exemptions apply to purchases of clothing and footwear ($100 or less per item), excluding clothing accessories, protective or athletic clothing, and some shoes including ballet, bicycle, bowling, cleats, football, golf, track, jazz, tap and turf (but note that aerobic, basketball, boat and running shoes are exempt).
  • Florida (August 2-6) Exemptions include clothing, shoes, wallets, handbags, and backpacks that cost $60 or less. Computers that cost less than $1,000 and school supplies, such as pens, pencils, binders and lunch boxes that cost less than $15 are also included.
  • Iowa (August 2-3) Exemptions apply to purchases of clothing or footwear (up to $100 per item); for any item that costs $100 or more, sales tax applies to the entire price of that item.
  • Maryland (August 12-18) Exemptions apply to purchases of clothing and footwear ($100 or less per item), including sweaters, shirts, slacks, jeans, dresses, robes, underwear, belts, shoes and boots priced at $100 or less. Accessories, including jewelry, watches, watchbands, handbags, handkerchiefs, umbrellas, scarves, ties, headbands and belt buckles will remain taxable, as will special clothing or footwear designed primarily for protective use and not for normal wear, such as football pads.
  • Mississippi (July 26-27). Exemptions apply to purchases of clothing and footwear ($100 or less per item regardless of how many items are sold at the same time); accessory items such as jewelry, handbags, wallets, watches, backpacks and similar items are not included. Footwear does not include cleats and items worn in conjunction with an athletic or recreational activity.
  • Missouri (August 2-4) Exemptions apply to purchases of clothing ($100 or less per item), school supplies ($50 or less per purchase), computer software ($350 or less), personal computers or computer peripheral devices ($1,500 or less) and graphing calculators ($150 or less). Some cities have opted not to participate (check the website for specifics), although in those circumstances the state’s portion of the tax rate (4.225%) will remain exempt.
  • New Mexico (August 2-4) Exemptions apply to purchases of footwear and clothing, excluding accessories ($100 or less per item); school supplies ($30 or less per item); computers ($1,000 or less per item); computer peripherals ($500 or less per item); and book bags and backpacks ($100 or less per item).
  • Ohio (August 2-4) Exemptions apply to purchases of clothing ($75 or less per item). Note that the exemption applies to clothing selling for $75 or less. If an item of clothing sells for more than $75, the tax is due on the entire selling price. Exemptions also apply to school supplies ($20 or less per item) and instructional materials ($20 or less, per item).
  • Oklahoma (August 2-4) Exemptions apply to purchases of clothing and footwear ($100 or less per item). The exemption does not apply to the sale of any accessories, special clothing or footwear primarily designed for athletic activity or protective use that is not normally worn except when used for athletic activity or protective use, or to the rental of clothing or footwear. Qualified items are exempt from state, city, county, and local municipality sales taxes.
  • South Carolina (August 2-4) Exemptions apply to a variety of back-to-school essentials, from clothing, accessories, and shoes to school supplies, backpacks, and computers. Shoppers will also find tax-free items for the home and dorm room.
  • Tennessee (July 26-28) Exemptions apply to purchases of clothing ($100 or less per item), computers ($1,500 or less) and school and art supplies ($100 or less per item). Apparel that costs more than $100 remains taxable, as do items such as jewelry, handbags, or sports and recreational equipment.
  • Texas (August 9-11) The law exempts most clothing, footwear, school supplies and backpacks priced under $100 from sales and use taxes from a Texas store or from an online or catalog seller doing business in Texas.
  • Virginia (August 2-4) Exemptions apply to purchases of clothing and footwear ($100 or less per item) and school supplies ($20 or less per item). Sports or recreational items are not exempt from tax. The holiday also applies to hurricane and emergency preparedness items, and Energy Star™ and WaterSense™ products.

(A handful of states which offered a sales tax holiday in 2018 have not yet confirmed a 2019 date.)

Keep in mind that some states have no statewide sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) while others (like Pennsylvania and Vermont) already exempt some necessities like clothing. Still, others offer special exemptions for hurricane supplies, Energy Star appliances, and other items. This list is meant to provide general guidelines for state sales tax holidays. Some states are pretty specific about what you can exempt so be sure to click on the links to your individual state’s revenue announcement for more details. Also keep in mind that some states offer counties and towns the option not to participate, so again, check with your state if you have questions.

I’ll continue to update the list as information is made available (feel free to reach out to me with changes or updates that you notice). Happy shopping!

If you’re planning a trip this holiday week, don’t forget to figure in the cost of gasoline. Drivers in some states will feel a pinch in their wallets as gas taxes increase beginning today.

The largest jump will be felt in Illinois where the state gas tax will double to 38 cents per gallon (up from 19 cents per gallon). A couple of states over, drivers in Ohio will also pay more, with an increase of 10.5 cents per gallon.

Less dramatic increases will be felt in California (an increase of 5.6 cents per gallon), where drivers pay more for gas than any other state. Price creeps will also be felt in South Carolina (an increase of 2 cents per gallon) and Tennessee (an increase of 1 cent per gallon).

States often change their rates to meet budget gaps and to pay for infrastructure projects. In 2017, a whopping seven states raised their prices – including South Carolina. This year’s boost in gas taxes in the Palmetto State is part of the state’s Roads Bill which took effect in 2017.

State gas taxes may be volatile, but the current federal gas tax rate is 18.4 cents per gallon (24.4 cents per gallon for diesel), a rate that hasn’t changed since 1993. President Trump signaled in 2017 that he would be amenable to a boost to the federal gas tax to pay for federal infrastructure projects, including rebuilding deteriorating roads, but there’s been no movement on the issue. 

With the federal gas tax rate remaining at 18.4 cents per gallon, you need only figure in the cost of your state gas tax. Fortunately, there’s no math involved on your part: the cost per gallon at the tank includes the taxes. That formula looks like this:

$.184 in federal gas + state taxes + the cost of gas = what you pay per gallon

The final result can vary wildly, depending on where you live. As of today, AAA says that gas is most expensive in these states:

  1. California ($3.755)
  2. Hawaii ($3.637)
  3. Washington ($3.353)
  4. Nevada ($3.311)
  5. Alaska ($3.258)
  6. Oregon ($3.227)
  7. Idaho ($3.007)
  8. Utah ($2.983)
  9. Pennsylvania ($2.915)
  10. Illinois ($2.885)

It’s least expensive in these states:

  1. Mississippi ($2.324)
  2. Alabama ($2.333)
  3. Louisiana ($2.343)
  4. Arkansas ($2.356)
  5. South Carolina ($2.373)
  6. Tennessee ($2.416)
  7. Missouri ($2.418)
  8. Texas ($2.420)
  9. Oklahoma ($2.425)
  10. Virginia ($2.454 )

You can check out the average price of gas in your state – and how prices compare to neighboring states – here.

Despite those tax increases, the price of gas still remains relatively low across the nation – down about 13.5 cents per gallon from the same time last year. Today’s national average, according to AAA, is $2.717.

The Supreme Court issued a decision in North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust—and it’s unanimous. The Court ruled that a trust beneficiary’s residence is not sufficient on its own for a state to tax a trust’s undistributed income. 

Here’s how the case arose. Joseph Lee Rice, III, created a trust for the benefit of his children in his home state of New York and appointed a fellow New York resident as the trustee. So, at first blush, you’d think it was a New York trust.

However, in 1997, Rice’s daughter, Kimberley Rice Kaestner, moved to (my home state) of North Carolina. The new trustee subsequently divided the trust into three separate subtrusts, including the Kimberley Rice Kaestner 1992 Family Trust formed for the benefit of Kaestner and her three children. With Kaestner living in the Tarheel State and a beneficiary of the trust, North Carolina attempted to tax the trust under a law authorizing the State to tax any trust income that “is for the benefit of” a state resident. That law, found at N.C. Gen. Stat. Ann. §105–160.2, isn’t so far afield: Other states attempt variations on this same thing. In this case, the North Carolina courts have interpreted the law to mean that a trust owes income tax to North Carolina whenever the trust’s beneficiaries live in the state, even if those beneficiaries received no income from the trust in the relevant tax year, had no right to demand income from the trust in that year and could not count on ever receiving income from the trust.

Under the trust agreement, the trustee had “absolute discretion” to distribute the trust’s assets to the beneficiaries. Since distributions weren’t mandatory, the trustee did not make any distributions to Kaestner for the tax years 2005 through 2008. The trust was supposed to terminate when Kaestner turned 40, which was after the tax years in question. After consulting with Kaestner, the trustee rolled over the remaining assets into a new trust instead of distributing them outright. The North Carolina Department of Revenue then assessed a tax on the full proceeds that the Kaestner Trust accumulated for tax years 2005 through 2008—more than $1.3 million. The trustee paid the tax under protest and sued, arguing that the tax violated the Due Process Clause under the Fourteenth Amendment. The state courts agreed, finding that residency of the beneficiaries alone was too tenuous a link to support the tax on the trust’s undistributed income. 

The case headed to the Supreme Court by writ of certiorari, filed on October 9, 2018, from the North Carolina Department of Revenue. That means that North Carolina asked to be heard. The Supreme Court has what is called “original jurisdiction” over certain kinds of cases. Those cases, which are defined by statute (28 U.S.C. §1251) go straight to the Supreme Court; the typical case associated with original jurisdiction would be a dispute between the states.

However, most cases don’t have original jurisdiction. To be heard at the Supreme Court level without having original jurisdiction, the losing party (in this case, the North Carolina Department of Revenue) must file a petition seeking a review of the case. If the Supreme Court grants the request and decides to hear the matter, it’s called a writ of certiorari. That’s what happened in this case. The Supreme Court granted certiorari to determine whether the Due Process Clause prohibits states from taxing trusts based only on the in-state residency of trust beneficiaries.

The Due Process Clause is found in the Fourteenth Amendment and states, in part:

No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Justice Sotomayor delivered the opinion for the Court. The Court, she explained, normally applies a two-step analysis to decide if a state tax abides by the Due Process Clause:

  • There must be “some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax” and
  • The “income attributed to the State for tax purposes must be rationally related to ‘values connected with the taxing State.’”

If either of those concepts sounds familiar, you can thank Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992). In Quill, the Supreme Court specifically examined the differences between the “minimum contacts” nexus required by the Due Process Clause and the “substantial nexus” required by the Commerce Clause. Quill was overturned in part last year by South Dakota v. Wayfair, Inc., 585 U. S. ___ (2018), but there are some principles that remain. (You can read Quill here and find out more about how the Supreme Court “killed” Quill last year here.)

To determine whether a state has the requisite minimum connection, the Court looked to another test, this one from International Shoe Co. v. Washington, 326 U. S. 310 (1945). Under Shoe, a state has the power to impose a tax only when the taxed entity has “certain minimum contacts” with the state. In Shoe, the Court found that only those who derive benefits and protection from associating with a state should have obligations to the state.

The Court had previously ruled in Maguire v. Trefry, 253 U. S. 12, 16–17 (1920) that a tax on trust income distributed to an in-state resident passes muster under the Due Process Clause. The Court also ruled in Greenough v. Tax Assessors of Newport, 331 U. S. 486, 494 (1947) that a tax based on a trustee’s in-state residence is allowable. Ditto under Hanson v. Denckla, 357 U. S. 235, 251 (1958) and Curry v. McCanless, 307 U. S. 357, 370 (1939) for a tax based on the site of trust administration.

But the argument, in this case, is different. North Carolina was seeking to impose a tax based on one contact: the residence of the beneficiaries. Here, the only connection to North Carolina was the residency of the beneficiaries. The trustee kept the trust documents and records in New York, and the trust asset custodians were located in Massachusetts. The trust had no physical presence in North Carolina, made no direct investments in the State and held no real property there. Contacts between the beneficiary and the trustee were minimal: There were only two meetings between Kaestner and the trustee during the time period in question, both of which took place in New York. That wasn’t enough. The Court held “that the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain ever to receive it.” 

But remember what I said earlier about other states having similar rules? The Court was clear to limit the holding to these specific facts. Justice Sotomayor wrote that “we do not imply approval or disapproval of trust taxes that are premised on the residence of beneficiaries whose relationship to trust assets differs from that of the beneficiaries here.” 

The Court went on to note that when assessing a state tax premised on residency, it’s important to examine the particular relationship (whether beneficiary, settlor or trustee) between the resident and the trust assets. Those relationships aren’t all created equal: The Court explained that the specific features of that relationship sufficient to sustain a tax may vary depending on whether the resident is a settlor, beneficiary or trustee.

In this case, the focus was on the residence of the beneficiary. Under existing law, the Constitution requires the resident to have some degree of “possession, control, or enjoyment of the trust property or a right to receive that property” before a state can tax the asset. That was not, the Court found, what happened here. Under the terms of the trust, the beneficiaries had no control over the investments or the distributions. The beneficiaries could not compel the trustee to release the funds, nor could they assign any of their rights under the trust to any other person. That wasn’t enough to demonstrate “possession, control or enjoyment” over the property.

So what exactly would constitute possession, control or enjoyment to the extent that the beneficiary could be taxed? The Court declined to answer, explaining, “we do not decide what degree of possession, control, or enjoyment would be sufficient to support taxation.”

North Carolina argued that a result that doesn’t focus on residency might result in forum-hopping or delay tactics to game the system, like putting off distributions until a beneficiary has moved to a low-tax state (I’m looking at you, Florida) to avoid the payment of tax. And there’s a lot of tax to be collected: The state claims that trust income nationally exceeded $120 billion in 2014. But the Court found that “mere speculation about negative consequences” cannot make up for the lack of minimum connection presently to justify the tax.

(If you’ve read down this far, you may be wondering why there wasn’t more about the discussion about the rational relationship test. Since the tax on the Kaestner Trust did not meet Quill’s first requirement, the Court did not address the second.)

With that, the Supreme Court affirmed the decision of the lower court ruling that the North Carolina tax violated the Due Process Clause of the Fourteenth Amendment. 

Justice Alito filed a concurring opinion, in which Chief Justice Roberts and Justice Gorsuch joined, wanting to make clear that the Court is merely applying existing precedent and the decision not to answer questions not presented by the facts of this case does not open for reconsideration any points resolved by prior decisions.

You can read all of the opinions here (downloads as a PDF).

The Internal Revenue Service (IRS) has issued additional guidance on state or local tax (SALT) cap workarounds, and there are no real surprises. The guidance largely puts an end to the benefits of those workarounds aimed at mitigating the consequences of SALT caps following the Tax Cuts and Jobs Act (TJCA).

Under the TCJA, the amount that you may claim on Schedule A for all state and local sales, income, and property taxes together may not exceed $10,000 ($5,000 for married taxpayers filing separately). This cap was concerning for taxpayers in high-property-tax states like California and Texas, as well as those in high-income-tax states like New York and New Jersey. As a result, some of those states proposed variations on state and local charitable funds or trusts which would accept payments from taxpayers in satisfaction of state and local tax liabilities. The idea, of course, is that those payments would then be re-characterized as fully deductible charitable contributions under section 170(a)(1) for federal income tax purposes.

Last June, the Treasury Department, and the IRS fired a warning shot at taxpayers in those states via Notice 2018-54(downloads as a PDF), advising that it intended to propose regulations (Regs) to resolve the issue. At the time, the agency warned, “The proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers.”

The substance-over-form principle can be boiled down to the adage, “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” In other words, you typically can’t repackage one thing (like a deduction for state and local taxes) as another thing (like a charitable deduction) and pretend it’s not the first thing. Or put another way, intent matters: Your tax return and financial records should reflect the economic reality of a transaction and not be an attempt to hide the real intent.

Last August, those proposed Regs were published in the Federal Register (83 FR 43563) – and they boiled down to the concept of quid pro quo. You can read more about quid pro quo here, but in the tax world, it’s a payment that a donor makes to a charity in exchange for something else: typically, it’s partly as a contribution and partly for goods or services. The proposed Regs made it clear that if a taxpayer made a payment or transfer to or for the use of a government or charity and the taxpayer receives or expects to receive a state or local tax credit in return for the payment, it’s a quid pro quo—and the benefit to the taxpayer will reduce any charitable contribution deduction under section 170(a).

This month, Treasury issued final regs requiring taxpayers to reduce those charitable contribution deductions by the amount of any state or local tax credits they receive or expect to receive in return (the quid pro quo). You can read the final regs, available in the Federal Register, here. Those final regulations, which are effective on August 12, 2019, apply to contributions made after August 27, 2018.

The final regs largely mirror the proposed regs. As written, a taxpayer making payments to an entity eligible to receive tax-deductible contributions (a charity) must reduce any federal charitable contribution deduction by the amount of any state or local tax credit that the taxpayer receives or expects to receive in return. (The same rules apply to payments made by trusts or decedents’ estates.)

There are exceptions for dollar-for-dollar state tax deductions and also for tax credits which do not exceed 15% of the amount transferred. That means that a taxpayer who receives a state tax deduction of $1,000 for a contribution of $1,000 is not required to reduce the federal charitable contribution deduction to account for the state tax deduction; and a taxpayer who makes a $1,000 contribution is not required to reduce the $1,000 federal charitable contribution deduction if the state or local tax credit received or expected to be received is no more than $150.

(Remember: Deductions typically reduce your taxable income, while credits reduce the tax payable. For more on credits, click here.)

Here’s another example from the regs. Let’s say that a state grants a 70% state tax credit under a state tax credit program, and a taxpayer who itemizes their deductions contributes $1,000 to that program. The taxpayer receives a $700 state tax credit in return for the contribution. As a result, the taxpayer has to reduce the $1,000 federal charitable contribution deduction by the $700 state tax credit, leaving a federal charitable contribution deduction of $300.

The general idea is to prevent double-dipping: no claiming the same amount twice under different sections of the Tax Code (section 170 applies to charities and section 164 applies to state and local tax payments). However, there are some unintended consequences of a bright-line rule. Treasury and the IRS have acknowledged that “a small fraction of taxpayers could see a reduction in their financial incentives to donate to state and local tax credit programs compared to their pre-Act incentives.” That’s because comments in response to the August proposed regulations raised the question of whether taxpayers in some circumstances might lose a deduction to which they would otherwise have been entitled. That’s because some existing tax credit programs—including pre-TCJA programs—offer taxpayers a choice of paying tax to the state or local government or making a payment to a charitable entity in exchange for a tax credit. Taxpayers who don’t hit the SALT cap but are forced to reduce their charitable contribution deduction can still end up with a higher tax bill under the rules. 

To mitigate the issue, the IRS simultaneously posted Notice 2019-12 (downloads as a PDF). In the Notice, the Treasury Department and the IRS announced that they intend to publish a proposed regulation amending the regs to provide a safe harbor for taxpayers who make a payment to or for the use of an entity under section 170(c) in return for a state or local tax credit. Under the safe harbor, a taxpayer who itemizes deductions and who makes a payment to a section 170(c) entity in return for a state or local tax credit may include the payment of state or local tax for purposes of section 164 the portion of such payment for which a charitable contribution deduction under section 170 is or will be disallowed under final regulations. 

This treatment is allowed in the taxable year in which the payment is made to the extent the resulting credit is applied, consistent with applicable state or local law, to offset the taxpayer’s state or local tax liability for such taxable year or the preceding taxable year. Any excess credit permitted to be carried forward can be treated as a payment of state or local tax in the taxable year or years for which the carryover credit is applied (again, consistent with applicable state or local law).

The safe harbor does not apply to a transfer of property. 

The proposed regulation for the safe harbor will apply to payments made after August 27, 2018. Affected taxpayers who have already filed their 2018 tax returns may be eligible for a larger SALT deduction but will need to file an amended return to claim the benefit. (You can find out more about amended returns here.)

The Treasury Department and the IRS have requested comments on the safe harbor described in this notice by July 11, 2019. You can submit comments electronically via the Federal eRulemaking Portal at www.regulations.gov (type IRS- – 9 – 2019-0020 in the search field on the www.regulations.gov homepage to find this notice and submit comments). You can also submit your comments by mail or private delivery to: CC:PA:LPD:PR (Notice 2019-12), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2019-12), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224. Keep in mind that all comments received will be available for public inspection on www.regulations.gov. 

And if you don’t think that they read the comments, think again. Remember, this Notice (and the resulting safe harbor) came about in response to taxpayer comments to the August proposed regs. Treasury and the IRS received more than 7,700 written comments received during the comment period and an additional 25 comments were made at the November 2018 public hearing. 

By now, most taxpayers understand that there are tax consequences associated with cryptocurrency, but ironically, until recently you couldn’t pay those taxes using cryptocurrency. That’s about to change: With the launch of OhioCrypto.com, Ohio will become the first state in the nation to accept tax payments using cryptocurrency.

“We are proud to make Ohio the first state in the nation to accept tax payments via cryptocurrency,” said Ohio Treasurer Josh Mandel. “We’re doing this to provide Ohioans more options and ease in paying their taxes and also to project Ohio’s leadership in embracing blockchain technology.”

Under the new payment system, not all taxpayers can make payment in cryptocurrency: It’s limited to businesses operating in Ohio. Offering the service to individual taxpayers is on the agenda, but Mandel hasn’t indicated any specific timeframe for the expansion.

Here’s how it works: If you operate a business in the State of Ohio and you have a tax bill, you can register online at OhioCrypto.com to pay your taxes. You can make payments on any of 23 eligible business-related taxes (you can find a list here), and there is no transaction limit.

The Treasurer’s office isn’t holding, mining or investing in cryptocurrency for payments or processing. All cryptocurrency payments are processed by a third-party cryptocurrency payment processor, BitPay. Those payments are immediately converted to dollars before being deposited into a state account.

“The State of Ohio is the first major government entity offering its citizens the option to pay with cryptocurrency,” said Stephen Pair, cofounder and CEO of BitPay. “With BitPay, Ohio can leverage blockchain technology and benefit from reduced risk and identity fraud as well as enabling quick and easy payments from any device anywhere in the world and get paid in dollars. This vision is at the forefront of moving blockchain payments into mainstream adoption.”

You’ll need to use Payment Protocol-compatible wallets to pay. Those include BitPay Wallet; Copay Wallet; BTC.com Wallet; Mycelium Wallet; Edge Wallet (formerly Airbitz); Electrum Wallet; Bitcoin Core Wallet; Bitcoin.com Wallet; BRD Wallet (breadwallet); and Bitcoin Cash (BCH) Wallets. If you don’t have one of these wallets, OhioCrypto.com advises you to create one and send some coin to it.

Currently, the Treasurer’s office only accepts Bitcoin for payment, but the plan is to add other cryptocurrencies in the future.

There is a cost associated with paying in cryptocurrency (it’s worth noting taxpayers who pay via credit cards or debit cards are also subject to fees from payment providers but are not assessed fees through the Treasurer’s office). Taxpayers paying using cryptocurrency are charged a transaction fee, network fee, and a miner fee. The miner fee will be displayed in the taxpayer’s wallet and not on OhioCrypto.com. The transaction fee will be 0% during an initial three-month introductory period, and after that time, it will be 1%. Fees are user fees and are not supplemented by state funds.

According to the Treasurer’s Office, “The State of Ohio will not pay Bitpay or any other company fees for processing or other services relating to the acceptance of crypto.”

It will be interesting to see if other state governments follow suit. A bill to accept bitcoin as payment for taxes was ultimately voted down, 264 to 74, by the New Hampshire legislature in 2016. A similar measure in Utah also failed to pass, while a bill to accept crypto for payments in Georgia stalled earlier this year. However, states are still trying: Arizona’s state legislature actually passed a crypto payment measure, but it was vetoed on May 16, 2018.

The Internal Revenue Service (IRS) doesn’t currently accept cryptocurrency as payment either. By law, the IRS issues Regulations (interpretations of the tax code) and other guidance about the kinds of payment which can be used to pay taxes. The IRS has authorized payment by check, money order, credit card and debit card—but not by Bitcoin or other cryptocurrency. (You can find more ways to pay your IRS tax bill here.)

You can’t always get what you want. But if you try sometimes, you find. You get what you need.

Those may be words crooned by the Rolling Stones, but the sentiment was echoed by the Internal Revenue Service (IRS). The IRS has released proposed regulations intended to address the workaround proposed by a handful of states in response to the Tax Cuts and Jobs Act (TCJA), and it’s not precisely what taxpayers wanted.

Under the TCJA, the amount that taxpayers may claim on Schedule A for all state and local sales, income, and property taxes together may not exceed $10,000, or $5,000 for married taxpayers filing separately.

Previously, there was no specific limitations on the amount of taxes you could claim on your Schedule A, though some taxpayers faced reduced itemized deductions due to the alternative minimum tax (more on the AMT here) and Pease limitations (more on those here). The TCJA changed that, slapping a cap on SALT deductions effective for the 2018 tax year, causing some taxpayers to cry foul.

In response, some states suggested a workaround. Proposals have included variations on state and local charitable funds or trusts which would accept payments from taxpayers in satisfaction of state and local tax liabilities. The idea, of course, is that those payments would then be re-characterized as fully deductible charitable contributions for federal income tax purposes. Those schemes already exist in some states to allow taxpayers a break on private school tuition since there’s no pure federal income tax deduction for private school tuition; you can read more about private school tuition here.

Hoping to put the kibosh on a rush to circumvent the new law, the IRS issued a warning in spring, “The proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers.” The tax world took a collective breath – and waited. (You can read more about the IRS notice here.)

As it turns out, the guidance wasn’t as bad as feared. I know, that’s not completely reassuring, but the fear was that any step towards limiting the deduction would have the unintended consequence of wiping out the benefit of existing state credit programs. The IRS has generally allowed those, even issuing Chief Counsel Advice memoranda (CCA) to that effect (it’s worth noting that CCAs are made public but do not carry the same weight as official guidance).

However, the new limits on SALT deductions have made it clear that the IRS needed to reexamine this question. So they did. Here’s what they determined.

(You can read the proposed regulations as a PDF here.)

Whenever you make a charitable gift, if you receive anything in return, the fair market value of what you receive must not be included in your total charitable deduction. It makes sense that you can’t claim a deduction for the entire amount because you received something of value in return.
The classic example is the pledge tote bag. When you call into a charity like public radio or public television, you often do so because you’ve been incentivized to call in exchange for a gift. Your $500 donation may net you a charitable deduction AND a nifty tote bag. Let’s assume the tote bag is worth $100 because it’s filled with Hamilton CDs. The charitable contribution is $400, not $500, because you’ve received $100 worth of stuff in return for your gift. Got it?

It’s a well-established principle referred to as quid pro quo. It was even featured in my popular “Taxes From A to Z” series last year (click here).
The IRS assumes that taxpayers who are contributing to these workarounds are expecting something in return. When you make receive or expect to receive a state or local tax credit in return for your contribution, the IRS takes the position that the receipt of this tax benefit is a quid pro quo – and you don’t get the take the full value of the deduction. The proposed regulations call for the amount otherwise deductible as a charitable contribution to be reduced by the amount of the state or local tax credit received or expected. The IRS says that is consistent with existing rules.

Here’s a quick example. Let’s say you write a check for $20,000 as a charitable donation in lieu of paying your property taxes. Let’s also assume you receive a state tax credit worth $18,000 state tax credit for that donation. For federal income tax purposes, you could only deduct $2,000 on a federal tax bill as a charitable deduction – the quid pro quo of $18,000 is disregarded.

There are some more rules, because… tax.

Specifically, the proposed regulations allow you to disregard dollar-for-dollar state or local tax deductions. However, if you receive or expect to receive a state or local tax deduction that exceeds the amount of your payment or the fair market value of the property transferred, your charitable contribution deduction must be reduced.

But what if you made the contribution and then elected to decline the state or local credit? What then? The IRS hasn’t worked out that bit just yet.
There’s also a de minimis provision (you may recall that the Latin phrase de minimis translates roughly to “of little importance” and lawyers love Latin). It allows you to disregard the value of a state or local tax credit if the credit doesn’t exceed 15% of your payment or 15% of the fair market value of the transferred property. Why 15%? According to the IRS, the combined value of a state and local tax deduction (the combined top marginal state and local tax rate) currently does not exceed 15%. Therefore, a state or local tax credit that does not exceed 15% will not reduce your federal deduction for a charitable contribution.

Oh, and one more thing: The IRS proposes that these regulations apply to contributions after August 27, 2018. That gives you a few days if you’re feeling lucky to try and reduce your 2018 tax bill – though that could be a tricky proposition. You’ll want to consult with your tax professional before making a big move.

In July, four states (Connecticut, Maryland, New Jersey, and New York) filed a lawsuit in federal court to strike down the cap on SALT deductions under the new tax law. That lawsuit is pending.

The Pennsylvania Supreme Court handed the City of Philadelphia a win today when it upheld a previous ruling that the tax on sweetened beverages is legal.

Philadelphia Mayor Jim Kenney welcomed the news, saying in part:

I am grateful to the Justices of the Pennsylvania Supreme Court for their fair and careful review of this case. We maintained from the day we proposed the tax that it stood on solid legal footing, and the Justices, like two courts before them, agreed.

The Philadelphia Beverage Tax (PBT), sometimes called a “soda tax,” is a 1.5 cent per fluid ounce tax on “sugar-sweetened beverages.” Despite the label, the tax applies to any non-alcoholic beverage which contains “any form of caloric sugar-based sweetener” or “any form of artificial sugar substitute.”

That means that in addition to sugary sodas, diet sodas are also subject to the tax. Certain juices and sports drinks are also included. The tax is imposed not directly consumers but on distributors. However, in response to the tax, many retailers have bumped their prices to include the hit.

The PBT is in addition to existing sales taxes. In Philadelphia, taxable sales are subject to a state sales tax of 6% plus a 2% local sales tax. Opponents of the tax had argued, among other things, that the PBT was unlawful and a violation of the Sterling Act because it imposed a second tax on the same subject or people. Today, the Supreme Court disagreed, instead agreeing with the lower and appellate courts, both of which had ruled in favor of the City.

The lower court explained that the BPT was not a second tax on the same subject or people because “[t]he respective taxes apply to two different transactions, have two different measures and are paid by different taxpayers.” The appellate agreed, finding an important legal distinction between the two: Even though the burden of the tax may be passed onto the consumer by the distributor, the legal responsibility for the tax is on the distributor and not the consumer.

The Supreme Court of Pennsylvania agreed, ruling by a vote of 4-2, that the city had not violated state law. Writing for the majority, Chief Justice Thomas G. Saylor declared:

The legal incidences of the Philadelphia tax and the Commonwealth’s sales and use tax are different and, accordingly, Sterling Act preemption does not apply.

Those justices voting with Saylor included Max Baer, Debra Todd, and Christine Donohue. (You can read the majority opinion, which downloads as a PDF.)

Justices Sallie Updyke Mundy and David N. Wecht each penned a dissent. You can read Justice Mundy’s dissent here and Justice Wecht’s dissent here (each will download as a PDF).

(And yes, there are seven seats on the Pennsylvania Supreme Court: Justice Kevin M. Dougherty, who hails from Philadelphia, had previously recused himself from the case.)

The focus on the Sterling Act in the arguments and the opinions is notable since the legal argument wasn’t “is this a good or a fair tax?” but “is it a legal tax?” The Act, which has been around since 1932, allows cities of the first class certain taxing powers that other cities and towns do not have – including the ability to levy additional taxes so long as they don’t overstep those imposed by the state. For purposes of the Act, first class cities are those with over one million residents. In Pennsylvania, there’s only one city that fits the bill: Philadelphia (the next largest city in Pennsylvania, Pittsburgh, has just over 300,000 residents).

Philadelphia City Solicitor Marcel Pratt explained, “As we have stated since passing the Philadelphia Beverage Tax, the City of Philadelphia possessed the legal authority to enact the Philadelphia Beverage Tax because of the broad taxing authority granted by the Sterling Act.” He went on to say, “As the Pennsylvania Supreme Court recognized, the Sterling Act is an embodiment of Depression-era legislation intended to enhance the City of Philadelphia’s ability to address essential local needs and issues—which is precisely why the City of Philadelphia enacted the Philadelphia Beverage Tax to fund programs and initiatives that our City needs.

However, to bolster their claim that the tax was an overreach, the appellants (a group of consumers, retailers, distributors, producers, and trade associations who sued in opposition to the tax) stressed that the beverage tax has a strong retail-sale nexus, writing in the complaint, “On its face, the plain language of the Tax demonstrates that it is intended to burden the retail consumer.”

If you think you’ve seen that word – nexus – before in a tax context, you’re right. Nexus is a legal term for a connection and is an essential factor when it comes to tax. On a federal level, states must establish a relationship between a taxpayer and the state to impose tax. That was the central issue in the recent online sales tax case (sometimes just called Wayfair) tackled at the U.S. Supreme Court.

In this case, the question wasn’t whether there was a connection to a physical location – there clearly is – but whether the link to consumers and products would be strong enough that it essentially constituted a second consumer sales tax. If it did, the tax would not have been allowed.

The PBT applies to a transaction between a distributor and a dealer and is payable even if no retail sale occurs: The payer is the distributor, and not the purchasing consumer. That, the majority writes, means that “the taxes have different subjects, measures, and payers, and accordingly, distinct legal incidences.” Accordingly, the ruled that the tax was legal.

In response to the decision, the Ax the Philly Bev Tax Coalition, a partnership between Philadelphia families and businesses impacted by the soda tax, said, “We are clearly disappointed that the Pennsylvania Supreme Court ruled against local businesses and consumers today in upholding Philadelphia’s wildly unpopular beverage tax, which is opposed by 60 percent of Philadelphia voters and has cost nearly 1,200 jobs. It is now up to our elected officials to listen to the concerns of their constituents and provide Philadelphians much needed relief by reversing this tax.”

You can bet that the ruling – popular or not – will have consequences beyond the City of Brotherly Love. While Philadelphia is the largest city in the United States to enact a soda tax, it’s not the first: Berkeley, California imposed the first such tax in 2015. Today, similar taxes exist in San Francisco, Oakland, Boulder and Seattle and other cities have tossed around the notion of a tax on sugary drinks.

However, not all cities are looking to jump on board the soda tax revenue train. A tax on sugary drinks which went into effect in Cook County, Illinois was wildly unpopular and was eventually repealed. At the time, Sam Toia, president of the Illinois Restaurant Association, likened the repeal to another era, saying, “Today we’re going to party like it’s 1933, because it is the end of our own prohibition.”

The case is Williams et al v. City of Philadelphia et al (Soda Tax case) No. 3 EAP 2018.

In the days following tax reform, leaders in some states complained loudly about feeling targeted by deduction caps imposed on state and local taxes (SALT). Now they’ve taken action. Today, four states (Connecticut, Maryland, New Jersey, and New York) filed a lawsuit in federal court to strike down the cap on SALT deductions under the new tax law.

As part of the Tax Cuts and Jobs Act (TCJA), the amount that taxpayers may claim on Schedule A for all state and local sales, income, and property taxes together may not exceed $10,000 ($5,000 for married taxpayers filing separately).

Previously, there was no specific limitations on the amount of taxes you could claim on your Schedule A, though some taxpayers faced reduced itemized deductions due to the alternative minimum tax and Pease limitations. The TCJA changed that, slapping a cap on SALT deductions effective for the 2018 tax year. In response, four states have filed to stop the IRS from enforcing the cap.

The lawsuit names Treasury Secretary Steven Mnuchin and IRS acting Commissioner David Kautter, as well as the U.S. Treasury, the Internal Revenue Service (IRS) and the United States of America (including all government agencies and departments responsible for the passage and implementation of TCJA) as defendants. The plaintiffs – the states of Connecticut, Maryland, New Jersey, and New York – are seeking “declaratory and injunctive relief” to eliminate the cap. What that means is that the states are asking the courts to declare that the cap will not be enforceable; there is no separate request for money or other damages.

According to the complaint, Congress has included a deduction for all or a significant portion of state and local taxes in every tax statute since the enactment of the first federal income tax in 1861. I know that sounds early, so some context is important. The first U.S. income tax was imposed in 1861 but was struck down as unconstitutional; the Sixteenth Amendment, ushering in a new federal income tax system, was ratified in 1913.

The complaint argues that those who drafted the Sixteenth Amendment understood that “the SALT deduction is essential to prevent the federal tax power from interfering with the States’ sovereign authority to make their own choices about whether and how much to invest in their own residents, businesses, infrastructure, and more—authority that is guaranteed by the Tenth Amendment and foundational principles of federalism.” The SALT cap, the plaintiffs argue, disregards States’ rights and the “distinct and inviolable role in our federalist scheme.” And, the complaint continues, “as many members of Congress transparently admitted, it deliberately seeks to compel certain States to reduce their public spending.” That, the complaint argues, is unconstitutional.

The plaintiffs argue the SALT cap will raise the federal tax liability of millions of taxpayers. By increasing the federal tax burden on taxpayers in targeted states, the plaintiffs say that it will be more difficult for the states to maintain their taxation and fiscal policies. That means that they cannot make policy decisions without federal interference – a direct violation, they argue, of the Sixteenth Amendment. And, further, they say that the cap “violates bedrock principles of federalism enshrined in the Tenth Amendment.”

The TCJA, the plaintiffs allege, was the result of a “rushed and highly partisan process.” In particular, the plaintiffs claim that the SALT cap as written is “unprecedented, unlawful, and will cause significant and disproportionate injury” to the taxpayers in the plaintiff states. For example, according to the lawsuit, the new cap will be responsible for New York taxpayers paying an additional $14.3 billion in federal taxes in tax year 2018, and an additional $121 billion between 2018 and 2025. The bump is because the average SALT deduction claimed by New York taxpayers in 2015, the most recent year for which tax data is available, was $21,943 – more than double the new SALT cap. The result means that while New Yorkers will make up approximately 6.3% of all U.S. taxpayers in 2019, New Yorkers will pay around 9.8% of all federal income taxes. Similar tax burdens will occur in Connecticut, Maryland, and New Jersey.

The plaintiffs also argue that the SALT cap will artificially depress home values in the their states. That sentiment appears to be shared by the National Association of Realtors (NAR), which warned last December that the (then) proposed changes could cause home values to fall in every state. The NAR warned that homeowners in New Jersey, Connecticut, Illinois, New Hampshire, Maryland, Rhode Island, Virginia, Wisconsin, Georgia, Minnesota, New York, Ohio, Pennsylvania, and Texas (in order of sharpest decline) would see the sharpest dives: Those 14 states include the four named plaintiff states.

Further, the New York State Division of the Budget projects that the new cap will result in a loss of tens of billions of dollars in home equity value. According to the plaintiffs, the SALT cap is likely to be the most significant factor in the decline in residential real estate prices. Even worse, the plaintiffs allege, the harm is magnified by the fact that taxpayers purchased their homes “years or even decades ago in reliance on the SALT deduction” which has been pulled without notice.

Were those states targeted or was it happenstance? The plaintiffs argue the former, citing Secretary Mnuchin’s own words that the cap on the SALT deduction was intended to “send a message” to the plaintiff states that they need to alter choices they have made about investing and spending. That, the plaintiffs allege, is a violation of the principles of equal state sovereignty.

Although the cap was reportedly targeted to states to send a message about their spending, the plaintiffs claim that they are in general, “net contributors to the federal government.” That means that they send more to the federal government than they take in. For federal fiscal year 2016, New York sent $40.9 billion more in tax payments to Washington than it received in federal spending. Or put another way, for every federal tax dollar generated in New York, the federal government returned 84 cents to New York. The average return, in contrast, is $1.18 for every tax dollar nationwide. In other words, New York puts more dollars back into the government than most other states, as do New Jersey and Connecticut.

Finally, the plaintiffs claim they are considering taking legislative and other actions to try to mitigate the consequences of the cap. However, the feds have now signaled they will take action to stop those efforts. That, the plaintiffs argue, makes it “clear that the federal government is not only targeting the Plaintiff States for adverse treatment, but that it intentionally seeks to interfere with the States’ sovereign policy authority over taxation and fiscal policy.”

(More on those efforts and the IRS response.)

“New York will not be bullied,” New York Attorney General Barbara Underwood, said in a press release announcing the lawsuit. “This cap is unconstitutional — going well beyond settled limits on federal power to impose an income tax, while deliberately targeting New York and similar states in an attempt to coerce us into changing our fiscal policies and the vital programs they support. We will not allow partisans in Washington to hurt our people or interfere with our policies. We’ve filed suit against this unconstitutional attack on New York and our state’s fundamental rights – because we won’t stand by and let Washington pick the pockets of New Yorkers.”

So will the states be successful? It’s hard to tell. It could come down to interpretation. “The key issue arising from the 141-page lawsuit seems to be whether the SALT deduction is a benefit or a constitutional right. It appears that the authors of the tax reform legislation viewed the SALT deduction as a benefit allowed by the federal government to the States. Whereas, the Plaintiff States view the SALT deduction as a constitutional right and any change to such right as a violation of States’ sovereign authority to make policy decisions without federal interference,” said Adam Beckerink, Tax partner at Morgan, Lewis & Bockius LLP. “As this lawsuit will likely be slow moving through the courts, many will be watching to see if other states join the suit and if the federal government will increase its scrutiny of the ‘workaround’ processes that were previously passed by the States.”

When asked for comment, a spokesperson for the IRS noted that “[t]he IRS does not comment on pending litigation.” Request for comment directed to the Treasury was not immediately returned.

The case is State of New York, State of Connecticut, State of Maryland and State of New Jersey v. Steven T. Mnuchin et al (S.D.N.Y., Civil Action No. 18-cv-6427, July 17, 2018).

(Author’s note: The article was updated on July 18 to include a statement from the IRS.)

School has only been out for a week in my area, and I’ve already received an email about back-to-school sales tax holidays (kudos to South Carolina Department of Revenue for being the most proactive). While parents like me aren’t thrilled to be thinking about spending for back-to-school already, when every dollar counts, taking advantage of state sales tax holidays can help reduce costs.
According to the National Retail Federation’s annual survey conducted by Prosper Insights & Analytics, last year the average family with grade school children had completed 45% of their shopping as of early August. That tends to coincide with the timing of back-to-school holidays. Here is a quick peek at states offering taxpayers a break on sales tax for back-to-school items this year:

  • Alabama (July 20–22) Exemptions apply to purchases of clothing ($100 or less per item), computers (single purchase up to $750), school supplies, art supplies or school instructional materials ($50 or less per item) and books ($30 or less per item). Not all counties and municipalities are participating, so check the state link for a list of participating locations.
  • Arkansas (August 4-5) Exemptions apply to purchases of clothing and footwear ($100 or less, per item), clothing accessories ($50 or less per item), school supplies, art supplies and school supplies. All retailers are required to participate and may not charge tax on items that are legally tax-exempt during the Sales Tax Holiday.
  • Florida (August 3-5) Exemptions include clothing, shoes, wallets, handbags and backpacks that cost $60 or less. Computers that cost less than $750 and school supplies, such as pens, pencils, binders and lunch boxes that cost less than $15 are also included. Web link coming!
  • Iowa (August 3-4) Exemptions apply to purchases of clothing or footwear (up to $100 per item); for any item that costs $100 or more, sales tax applies to the entire price of that item.
  • Louisiana (August 4-5) Provides a 2% exemption from the state sales tax, meaning eligible purchases are subject to only 3% state sales tax.
  • Mississippi (July 27-28). Exemptions apply to purchases of clothing and footwear ($100 or less per item regardless of how many items are sold at the same time); accessory items such as jewelry, handbags, wallets, watches, backpacks and similar items are not included. Footwear does not include cleats and items worn in conjunction with an athletic or recreational activity.
  • Maryland (August 12-18) Exemptions apply to purchases of clothing and footwear ($100 or less per item), including sweaters, shirts, slacks, jeans, dresses, robes, underwear, belts, shoes and boots priced at $100 or less. Accessories, including jewelry, watches, watchbands, handbags, handkerchiefs, umbrellas, scarves, ties, headbands and belt buckles will remain taxable, as will special clothing or footwear designed primarily for protective use and not for normal wear, such as football pads. In 2017, the first $40 of a backpack or bookbag purchase is also tax-free.
  • Missouri (August 3-5) Exemptions apply to purchases of clothing ($100 or less per item), school supplies ($50 or less per purchase), computer software ($350 or less), personal computers or computer peripheral devices ($1,500 or less) and graphing calculators ($150 or less). Some cities have opted not to participate (check the website for specifics), although in those circumstances the state’s portion of the tax rate (4.225%) will remain exempt.
  • New Mexico (August 3-5) Exemptions apply to purchases of footwear and clothing, excluding accessories ($100 or less per item); school supplies ($30 or less per item); computers ($1,000 or less per item); computer peripherals ($500 or less per item); and book bags and backpacks ($100 or less per item).
  • Ohio (August 3-5) Exemptions apply to purchases of clothing ($75 or less per item). Note that the exemption applies to clothing selling for $75 or less. If an item of clothing sells for more than $75, the tax is due on the entire selling price. Exemptions also apply to school supplies ($20 or less per item) and instructional materials ($20 or less, per item).
  • Oklahoma (August 3-5) Exemptions apply to purchases of clothing and footwear ($100 or less per item). The exemption does not apply to the sale of any accessories, special clothing or footwear primarily designed for athletic activity or protective use that is not normally worn except when used for athletic activity or protective use, or to the rental of clothing or footwear. Qualified items are exempt from state, city, county and local municipality sales taxes.
  • South Carolina (August 3-5) Exemptions apply to a variety of back-to-school essentials, from clothing, accessories, and shoes to school supplies, backpacks, and computers. Shoppers will also find tax-free items for the home and dorm room.
  • Tennessee (July 27-29) Exemptions apply to purchases of clothing ($100 or less per item), computers ($1,500 or less) and school and art supplies ($100 or less per item). Apparel that costs more than $100 remains taxable, as do items such as jewelry, handbags, or sports and recreational equipment.
  • Texas (August 10-12) The law exempts most clothing, footwear, school supplies and backpacks priced under $100 from sales and use taxes, which could save shoppers about $8 on every $100 they spend.
  • Virginia (August 3-5) Exemptions apply to purchases of clothing and footwear ($100 or less per item) and school supplies ($20 or less per item). Sports or recreational items are not exempt from tax. The holiday also applies to hurricane and emergency preparedness items, and Energy Star™ and WaterSense™ products.
  • Wisconsin (August 1-5) Exemptions include clothing, if the sales price of any single item is $75 or less; a computer purchased by a consumer for the consumer’s personal use, if the sales price of the computer is $750 or less; school computer supplies purchased by the consumer for the consumer’s personal use, if the sales price of any single item is $250 or less; and school supplies, if the sales price of any single item is $75 or less.

The following states offered a sales tax holiday in 2017, but I have not yet been able to confirm for 2018 (dates listed are expected):

  • Connecticut (August 19-25) Exemptions apply to purchases of clothing and footwear ($100 or less per item), excluding clothing accessories, protective or athletic clothing, and certain shoes including ballet, bicycle, bowling, cleats, football, golf, track, jazz, tap and turf (but note that aerobic, basketball, boat and running shoes are exempt).

Keep in mind that some states have no statewide sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) while others (like Pennsylvania and Vermont) already exempt some necessities like clothing. Still, others offer special exemptions for hurricane supplies, Energy Star appliances, and other items. This list is meant to provide general guidelines for state sales tax holidays. Some states are pretty specific about what you can exempt so be sure to click on the links to your individual state’s revenue announcement for more details. Also keep in mind that some states offer counties and towns the option not to participate, so again, check with your state if you have questions.
I’ll continue to update the list as information is made available (feel free to reach out to me with changes or updates that you notice). Happy shopping!

Have you snagged your free doughnut today? Free and doughnuts in the same sentence? It’s not a tease. You really can pick up some free doughnuts because it’s National Doughnut Day!

I know what you’re thinking: this is some marketing ploy recently dreamed up by bakers to sell more doughnuts. But you would be wrong. Today marks the 80th anniversary of National Doughnut Day: The first National Doughnut Day happened in Chicago in 1938. And it wasn’t dreamed up by bakers or marketers but by the Salvation Army as a fundraiser. It was a way commemorate the work of the “doughnut girls” or “donut lassies” who fed the treats to American soldiers during World War I (the “doughnut girls” also returned to their baking duties during World War II.)

Here’s how it happened. During wartime, the Salvation Army provided support for U.S. soldiers fighting in France during World War I. About 250 volunteers traveled overseas and set up small huts located near the front lines where they could give soldiers clothes, supplies and, of course, baked goods. But foodstuffs were limited on battlefields. Doughnuts, however, were relatively easy to make, since they were composed mostly of sugar, water, flour, and lard (Shh, that’s the secret!). The doughnut girls began frying doughnuts in the field, seven at a time, to save on resources. Eventually, Salvation Army’s Ensign Margaret Sheldon and Adjutant Helen Purviance thought of frying the doughnuts inside of soldiers’ helmets as a space saver, starting a tradition.

And although female Salvation Army volunteers also provided writing supplies, stamps, clothes-mending and home-cooked meals to soldiers on the front lines, serving up those doughnuts was what resonated with the troops. The memory of the doughnut girls inspired National Doughnut Day. It’s now a tradition on the first Friday of June to down a doughnut in honor of our troops.

Today, many restaurants will celebrate by giving away doughnuts. Here are a few spots where you can get free treats on National Doughnut Day:

  • Duck Donuts. Duck Donuts will be offering a FREE classic donut.
  • Dunkin’ Donuts. Enjoy a FREE doughnut with any beverage purchase.
  • Entenmann’s. Entenmann’s is asking customers to comment on their Facebook page with a pic of your Entenmann’s donut creation – 10 random winners will get an Entenmann’s prize pack!
  • Fractured Prune. Get a free OC Sand Doughnut at participating Fractured Prune Doughnuts locations.
  • Kimpton Hotel Palomar San Diego. The hotel will be providing donuts during the regular morning coffee service. At night, guests can experience a complimentary donut and beer pairing during the hotel’s regularly scheduled wine hour from 5-6 p.m. in the lobby.
  • Krispy Kreme. Get one free doughnut of your choice, no purchase necessary.
  • LaMar’s Donuts. Celebrate with a FREE donut. Any donut with a hole, no purchase necessary. Click on the link to print out your ticket.
  • Shipley Donuts. Stop by today until noon to get your free glazed with purchase, at participating locations.
  • Walmart. Get a free whole glazed doughnut while supplies last. Go to the store’s bakery section to pick up your treat.

Of course, you can’t eat just one doughnut, right? If you decide to pick up a dozen (or three) extra doughnuts while you’re in the store, whether you will pay sales tax on those doughnuts depends on what you’re going to do with them, or at least what your state’s revenue department anticipates you’d do with them.

Doughnuts are one of those quirky foods that confound merchants across the country because, in most states, the question of how to tax them rests on whether they are considered a “take out” or “eat in” food. In most – but not all – states, sales tax is imposed on foods that are to be eaten on the premises while those to be taken away are often exempt.

In North Carolina, where Krispy Kreme first opened its doors in 1937, prepared foods “other than bakery items sold without eating utensils by an artisan bakery” are subject to state and local sales tax.”  And yes, bakery items specifically includes doughnuts, though the NC legislature has come down solidly in favor of the alternative spelling “donut.”

The sales tax compliance experts at Avalara note that utensils also matter: In Utah, if a donut shop sells donuts but doesn’t provide utensils, the donuts are taxed at the reduced rate. If utensils are readily available or offered with the donut, the general rate of sales tax applies.

In Richmond, Virginia, whether a sale is taxable depends on how many doughnuts you order. If you order between one and five doughnuts, that’s considered a meal and is taxable. If you order six or more doughnuts, it’s assumed that you are not eating them as a single serving (apparently, no one on City Council was ever a college freshman). There’s a similar rule in Wyoming – the multiple serving exception – which exempts an item containing four or more servings packaged and sold as one item, like a dozen donuts (since you would never, ever eat them all at once, right?).

In New York, doughnuts are generally exempt from sales tax “unless sold under the conditions … that would render them taxable.” Those conditions include heated food; food sold for consumption on the premises; or food which “has been prepared by the seller and is ready to be eaten, whether for on premises or off premises consumption.”

When it comes to doughnuts, the warm food rule does have some holes: In Missouri, if a grocery store sells doughnuts in its bakery department, those are taxed at a reduced rate “even though these donuts may still be warm from baking.”

And while some states treat food served at a drive-in as part of a restaurant and therefore, taxable, doughnuts sold at a drive-in in California would be exempt if the restaurant can substantiate the claim that the doughnuts aren’t intended to be eaten on the premises.

The taxability of doughnuts is just another example of the tricky nature of sales tax systems across the country. From pumpkins to Pringles , companies and taxing authorities have squabbled about the taxable nature of food items. It’s a reminder of exactly how difficult it can be for a retailer to do business in more than one state. As it is, if retailers and taxing authorities can’t easily determine taxability inside one state, how can they easily determine taxability in fifty states? It’s a difficult question and one that isn’t likely agreed upon any time soon. When it comes to doughnuts, however, the thing we can all agree on? They’re delicious. Enjoy the day!