Texas sales tax holiday for energy-efficient products starts May 26

Memorial Day Weekend is a time to kick back with friends and family, get away, or maybe tackle projects at home. In Texas, it’s also a time to shop tax free. The Texas Sales Tax Holiday for Water-Efficient and Energy Star Products runs May 26–28, 2018. During that time, no tax is charged on sales of qualifying WaterSense and Energy Star products.

For consumers, this is an opportunity to replace older, energy-eating appliances with newer, more efficient models. The chance to avoid sales tax can be irresistible — and that’s the idea. According to Texas Comptroller Glenn Hegar, “As of May 1, more than 60 percent of the state was in abnormally dry or drought conditions — and anyone who’s lived through a Texas summer knows the strain triple-digit temperatures can put on power grids. These two holidays are a perfect time to save on state and local sales taxes while upgrading outdated water systems or inefficient appliances.”

That’s good news for retailers, as a sales tax holiday can boost business. However, it also complicates sales tax compliance. Only certain products are eligible for the sales tax exemption, and some products are subject to price restrictions.

Exempt

Energy Star products that qualify for the sales tax exemption include:

• Energy Star-labeled air conditioners priced at $6,000 or less
• Energy Star-labeled refrigerators priced at $2,000 or less             
• Specified Energy Star-labeled products, no price restriction (ceiling fans, clothes washers, dishwashers, dehumidifiers, and incandescent and fluorescent lightbulbs)
• Programmable thermostats labeled Energy Star prior to December 31, 2009 (the Energy Star qualification for these products was suspended on that date)

The exemption applies to purchases, rentals, and leases. Installation, shipping, and delivery charges are considered part of the sales price and therefore could impact the price restriction. For example, an Energy Star refrigerator priced at $1,995 would qualify. If a delivery fee of $50 is added, the total sales price is $2,045, and the sale would be taxable.

Conversely, all WaterSense-labeled products qualify for the sales tax exemption. There are no price restrictions.

During the tax-free period, certain water-conserving products may also be purchased tax free, provided they’re purchased for residential use only. These include:

• Moisture controls for sprinkler or irrigation systems
• Mulch, soil, and compost
• Plants, trees, and grasses
• Rain barrels
• Soaker or drip-irrigation hoses
•  Water-saving surfactants

Contractors, landscapers, and other service providers can purchase qualifying Energy Star and WaterSense products tax free to keep in inventory. This is not true for qualifying water-conserving products, which much be purchased for personal use only.

Taxable

Some products remain taxable even if Energy Star-labeled. These include:

• Attic fans
• Beverage chillers, kegerators, and wine refrigerators
• Clothes dryers
• Freezers
• Heat pumps
• Stoves

According to the Texas Comptroller, Texans will save approximately $10.7 million in state and local sales tax during the tax-free period. That means a lot of people are expected to take advantage of it.

Retailers who handle sales tax manually need to be sure point-of-sale systems are properly programmed and staff are trained to understand which items qualify for the exemption, and which do not. Out-of-state retailers who are registered to do business in Texas and sell qualifying items online also need to ensure the sales tax holiday is accounted for at checkout.

Learn more about states with sales tax holidays in 2018.