State Sales Tax Holidays
By Erica Michel | Vol . 23, No. 11 / March 2015
Did you know?
- Seventeen states held sales tax holidays in 2014.
- New York created the first modern sales tax holiday for clothing in 1997 to compete with neighboring New Jersey.
- Sales tax holidays usually correspond with the “back-to-school” season when families often purchase new clothes and school supplies.
The idea of giving people a “holiday” from paying sales taxes has been growing in popularity in the United States since the late 1990s. During what is known as a sales tax holiday, a state places a temporary suspension on state, and sometimes local, sales taxes. States usually time such holidays during “back-to-school” shopping periods, and they last just a few days. According to the Federation of Tax Administrators, 17 states had at least one sales tax holiday in 2014, and at least 15 states are scheduled to have them in 2015.
New York instituted the first modern sales tax holiday for clothing in 1997 to compete for business with neighboring New Jersey, which exempts clothing from the state sales tax. Since then, several states have experimented with sales tax holidays, primarily in the Southeast. The most common goods included in these holidays are clothing, footwear, school supplies and computers. Sales tax holidays also are viewed as a way to mitigate regressive sales taxes, which disproportionately affect low-income taxpayers.
Most states place caps on goods purchased during sales tax holidays. In states that include them, these caps are usually about $100 for clothing, $20 to $50 for school supplies and $1,000 for computers. South Carolina does not impose a cap during its typical three-day holiday. Louisiana and Massachusetts also have two of the more generous sales tax holidays, allowing a sales tax exemption for most personal purchases up to $2,500.
Proponents of sales tax holidays argue that not having to pay sales taxes for a brief period makes the tax code fairer for low-income residents. Advocates also see sales tax holidays as a way to provide an additional boost in retail sales for local businesses. Similar to a Black Friday sale, consumers might be more likely to purchase more since they would be saving on sales taxes. Sales tax holidays may also temporarily allow states with a higher general sales tax rate to compete with neighboring states with lower sales taxes. One main reason many people and lawmakers support sales tax holidays, however, is simply that they save consumers money.
On the other side of the debate, some evidence suggests that sales tax holidays result in lost revenue for states. According to Georgia State University’s Tax Expenditure Report, the state lost about $41 million in revenue from its back-to-school sales tax holiday in 2013. Sales tax holidays also can place an administrative burden on businesses, which must change their tax collection method for just a few days. Opponents also argue that sales tax holidays are not an effective way to help low-income individuals. Low-income consumers may be less able to shift their purchases to coincide with the holiday, and some, such as the elderly, might have needs other than the goods offered. Overall, opponents say, sales tax holidays simply shift the timing of consumer purchases.
While sales tax holidays began with clothing and school supplies, some states have expanded or created new holidays for additional goods. Energy Star efficient products have been added in at least six states, and some coastal states created tax holidays for hurricane preparedness items.
Sales tax holidays on firearms and hunting supplies have also gained popularity. South Carolina enacted the first such holiday for firearms in 2008. Louisiana and Mississippi soon followed, but both states expanded the sale to include other hunting equipment as well. In 2015, lawmakers in Tennessee and Texas have introduced bills to create sales tax holidays on firearms and hunting gear.