Medical Masks and Sales Tax

by Sarah Craig April 15, 2020

At TaxJar, we have always admired the innovation of the country’s small and medium sized businesses. And during the time of COVID-19, businesses have had to get creative in order to weather the storm. Whether it’s a restaurant quickly pivoting to selling groceries, or a distillery staying open by switching production to hand sanitizer, businesses are doing what it takes to both survive and help during these troubled times.

Several companies, like Beach Babe Swimwear, have pivoted to directly helping the healthcare effort. Now, the fabric that once went into making bikinis is being sewn into protective masks!

Of course, when any business pivots, they have a lot of things to think about. And what shouldn’t be one of your worries when you’re trying to (literally and financially) survive a pandemic? Sales tax!

When making a big change in your business, look for these sales tax considerations in order to stay on track.

Check for changes in product taxability

Sometimes, when you pivot your business to start making new products, you pivot to an entirely new “tax category” as well. What do we mean?

Let’s look at the (admittedly very specific) example of switching from selling swimwear to selling masks. Swimwear is classified in the same category as “clothing” in many states. And some states don’t tax clothing

However, those same states that don’t require retailers to charge sales tax on clothing, do often consider medical masks or other personal protective equipment taxable.  

As an example, in New York, clothing priced under $110 is not subject to state sales tax. But medical masks in New York are specifically listed as taxable. 

In this case, a company that sells swimsuits under $110 may not be set up to charge New York State sales tax. But when they pivot to making masks, they are then required to collect that state’s sales tax. 

For these businesses, it’s vital that they be sure they are taxing (or not taxing) products correctly. Failing to collect sales tax could leave them paying sales tax out of pocket. But collecting sales tax when a customer isn’t expecting to pay it can create a negative customer experience.

Check for sales tax based on “usage”

In another scenario, some states tax medical masks depending on their use. In New Jersey, medical masks purchased for personal use are taxed, while masks used by professionals on-the job as part of a work uniform or work clothing are considered non-taxable. 

As an eCommerce business, it would be up to you to determine how your New Jersey customers are using their masks. For example, an order from a hospital would likely be tax exempt, while an order from an individual would likely be taxed. At the end of the day, the onus will be on you, the seller, to explain why you did or did not collect sales tax on an order.

Good deeds should never be punished. If you find yourself pivoting your product lines during COVID-19, be sure to check product taxability and ensure you’re still collecting the right amount of sales tax from the right customers in every state. 

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