When selling clothing and accessories in the U.S., businesses need to be aware of sales tax regulations and registration requirements, which can differ greatly across states. Some states impose a general sales tax on clothing, while others provide exemptions or tax holidays for specific items. This article outlines the main aspects of U.S. sales tax laws, registration requirements, and significant state-specific exceptions for clothing retailers.

 General overview of clothing sales tax legislation

Sales tax in the U.S. is a consumption tax that applies to the sale of goods, including clothing, in most states. However, the rates, exemptions, and rules surrounding clothing taxation differ depending on the state. Generally, apparel is considered taxable, but several states offer full or partial exemptions.

• Taxable States: Most states apply standard sales tax to clothing sales. For example, California taxes all apparel at the state’s general sales tax rate, without exemptions for basic clothing items.
• Exempt States: On the other hand, states like Pennsylvania and New Jersey offer significant exemptions, with most types of clothing exempt from sales tax.

Requirements for registering as a remote clothing retailer

In the U.S., remote clothing retailers are subject to varying sales tax registration requirements depending on the concept of nexus. Nexus refers to the connection or presence a business has in a state, which dictates whether it is required to collect and remit sales tax. For remote sellers, the key concept is economic nexus, introduced widely following the Supreme Court’s 2018 ruling in South Dakota v. Wayfair, Inc. This ruling allowed states to impose tax collection responsibilities on out-of-state sellers based solely on sales volume or the number of transactions.

Remote clothing retailers must register for sales tax collection in U.S. states where they establish either physical nexus or economic nexus. Physical nexus occurs when a retailer has a physical presence in a state, such as employees, warehouses, or inventory. On the other hand, economic nexus is triggered when a retailer meets specific sales or transaction thresholds in a state, even without physical presence. These thresholds typically range from $100,000 to $500,000 in annual sales or 200 transactions.

For example, California requires remote sellers to register if they exceed $500,000 in sales annually, while Georgia mandates registration once a retailer surpasses $100,000 in sales or 200 transactions within the state. After crossing these thresholds, retailers must complete the state’s registration process, collect the appropriate sales tax from customers, and remit it according to state requirements.

Taxation of apparel in states where clothing is exempt

In some U.S. states, clothing is exempt from sales tax, but there are important exceptions and specific rules that retailers must follow. The states of Pennsylvania, New Jersey, and Minnesota offer tax exemptions on clothing, but with certain conditions.

1. Clothing is generally exempt from sales tax in Pennsylvania. This exemption includes most everyday apparel items such as shirts, pants, dresses, and shoes. However, some exceptions apply: formal wear, sports equipment, and accessories like jewelry and handbags are taxable. Retailers selling these items must collect sales tax.
2. Like Pennsylvania, New Jersey exempts most clothing and footwear from sales tax. However, certain items, such as fur clothing and costume items, are subject to tax. Additionally, items like accessories (e.g., belts, handbags, and jewelry) and protective gear are also taxable.
3. In Minnesota, most clothing items are exempt from sales tax. Everyday apparel like shirts, pants, and shoes are not taxed. However, accessories (e.g., handbags, watches, and jewelry), protective clothing, and sporting gear are subject to sales tax.

These states provide significant tax relief on clothing, but retailers need to be aware of taxable exceptions to ensure compliance.

Taxation of apparel in states with price thresholds

In certain U.S. states, clothing is generally exempt from sales tax up to a specific price threshold. Once this threshold is exceeded, sales tax applies either to the entire purchase or only the portion above the threshold. States like New York and Massachusetts follow this system, but the way taxes are applied can vary between state and local jurisdictions.

In New York, clothing and footwear priced under $110 per item are exempt from state-level sales tax. However, if an item exceeds $110, the full price becomes taxable at the standard state rate of 4%. Additionally, local jurisdictions (such as counties and cities) may impose their own sales tax on clothing, even for items under the $110 threshold. For example, in some areas like New York City, both state and local taxes are exempt for items priced below $110. However, in other jurisdictions, local taxes may still apply even if the state tax does not.

In New York, some items do not qualify for tax exemption. These items include:

• Clothing or footwear sold for $110 or more;
• Costumes or rented formal wear;
• Items made from pearls, jewels, or precious metals, whether real or imitation, that are used to make or repair clothing;
• Athletic equipment (such as cleats or shoulder pads) and protective gear (such as motorcycle helmets) are also taxable, as they are considered specialized equipment rather than everyday wear.

In Massachusetts, most clothing and footwear items are exempt from sales tax if they cost less than $175. If the item exceeds $175, only the portion of the price over $175 is subject to sales tax at a rate of 6.25%. For example, if a piece of clothing costs $200, only $25 will be taxed. This ensures that most everyday apparel remains untaxed, while luxury or high-priced items are partially taxed.

Taxation of luxury clothing in states with higher tax rates

Some states impose higher sales tax rates on luxury clothing or certain types of expensive apparel. These states differentiate between everyday clothing and high-end, luxury items, either through price thresholds or item-specific categories. Below are some states with notable luxury clothing tax policies:

1. Connecticut imposes a luxury tax on clothing and footwear priced over $1,000. While standard clothing below this threshold is taxed at the regular rate of 6.35%, items exceeding $1,000 are taxed at an elevated rate of 7.75%. This includes high-end designer apparel, footwear, and accessories.
2. Although California does not specifically impose a “luxury tax” on clothing, it has a tiered tax structure with local jurisdictions adding their own sales tax on top of the state’s base rate. In areas like Los Angeles and San Francisco, combined sales tax rates can be as high as 10.25%, significantly impacting luxury purchases such as high-end fashion.

Retailers selling luxury clothing in these states need to be mindful of both state and local regulations, as well as any specific thresholds that apply to high-priced items. This ensures proper tax collection and compliance with luxury taxation policies.

Tax holidays for clothing

Tax holidays are special periods during which states temporarily suspend sales taxes on certain items, including clothing, to encourage consumer spending. These holidays often occur around back-to-school seasons and are intended to reduce costs for families. Below are examples of states that conduct tax holidays on clothing:

1. Texas offers an annual sales tax holiday in August, during which clothing and footwear priced under $100 per item are exempt from sales tax. This holiday typically lasts for three days and aims to help families prepare for the school year.
2. Florida conducts a tax holiday during the back-to-school season, usually in late July or early August. Clothing and footwear priced at $100 or less per item are exempt from sales tax.
3. Missouri’s sales tax holiday generally occurs in August and includes tax exemptions on clothing priced at $100 or less per item. This tax break coincides with school preparations and covers clothing, school supplies, and personal computers.
4. In South Carolina, the state conducts an annual sales tax holiday on clothing during the first weekend of August. During this period, items like clothing, footwear, and school supplies are exempt from the state’s 6% sales tax, regardless of the item’s price. This tax holiday typically spans from Friday through Sunday and is intended to help families save on back-to-school purchases. Unlike some states, South Carolina does not set a price limit on individual items, allowing consumers to buy clothing of any value tax-free during the holiday.
5. While Massachusetts does not always specifically target clothing, it often holds a broad sales tax holiday, generally in August, during which all retail items, including clothing, under a certain price threshold (often $2,500) are exempt from sales tax.

These tax holidays provide significant savings for consumers and can result in a spike in retail sales, benefiting both customers and retailers. However, it’s important to check the specific dates, limits, and item eligibility each year, as they can vary.

Apparel retailers must be aware of the complexities involved in U.S. sales tax laws. From understanding where and when to register, to knowing the exemptions and thresholds, compliance is key to avoiding penalties and ensuring smooth operations. Regularly consulting official state tax resources and staying informed on legislative changes will help businesses navigate the ever-changing landscape of sales tax in the U.S.