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Retailers with NY Operations: Update to Sales Tax Exemption for Clothing and Footwear


Beginning April 1, 2012, clothing, footwear, and items used to make or repair exempt clothing sold for less than $110 per item (per item of clothing or per pair of footwear) will be exempt from New York State's 4 percent sales and use tax. This exemption will also apply to the 3/8 percent state sales tax in those localities in the Metropolitan Commuter Transportation District ("MCTD") that exempt such items from the local sales tax. Counties and cities can elect to participate in the State's sales and use tax exemption for clothing and footwear.

For the period April 1, 2011 through March 31, 2012, the sales tax exemption was limited to clothing and footwear sold for less than $55 per item.

Transitional provisions relating to New York's clothing and footwear exemption follow:

  • Orders for clothing and footwear: Merchandise that is ordered via mail, telephone, internet, or e-mail is taxed at the rate in effect on the date the order is accepted by the vendor, regardless of when the order will be delivered.
  • Rain checks: Sales tax on any purchase made with a rain check is based on the rate in effect at the time of purchase, without regard to when the rain check was issued.
  • Layaway sales: In a layaway sale, merchandise is set aside for future delivery to a customer who makes a deposit and agrees to pay the balance over a period of time before the merchandise is delivered. If a vendor and customer enter into an agreement/contract for a layaway sale of eligible clothing or footwear before April 1, 2012, then the state and local exemption in effect at the time of layaway will apply if: (a) The customer makes a deposit of at least 10 percent of purchase price; and (b) The merchandise is segregated from other inventory. If a vendor and a customer enter into a contract for a layaway sale of eligible clothing or footwear on or after April 1, 2012, the state and local exemption in effect at that time will apply.
  • Returns and exchanges: If a customer purchases eligible clothing or footwear before April 1, 2012, and pays tax on the purchase, and then returns the item and receives a store credit or is allowed to purchase an exempt item on or after April 1, 2012, the tax paid on the original purchase can be refunded or credited since the original sale was cancelled. If a customer purchases exempt clothing or footwear and later returns the item for an exchange, there will be no tax due as long as the item exchanged is another exempt item. If the customer returns the original exempt item and purchases a different item that is not eligible for exemption, then tax will be due for the newly purchased item.

For more information on these or other state and local tax matters, please contact Scott Smith, CPA, a senior manager in the Firm's State and Local Tax Practice, at ssmith@jhcohn.com or 973-364-7720, or Patrick J. Duffany, CPA, JD, partner and director of the Firm's State and Local Tax Practice, at pduffany@jhcohn.com or 860-368-3607.

Download the full PDF.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and J.H. Cohn LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Published date: 3/22/2012

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