The end of summer is a reminder that back-to-school shopping is around the corner—and so are sales tax holidays. This year, 19 states will offer sales tax holidays on clothing, shoes, school supplies and computers, among other items. The holidays last anywhere from two days to an entire month.
Sales tax holidays are not a new concept. In fact, states have used tax holidays since 1980, when Ohio and Michigan briefly exempted vehicle purchases from sales tax. In 1997, New York began the sales tax holiday as we know it by exempting clothing for a short time to compete with neighboring New Jersey, where clothing was already exempt from sales tax.
More recently, states have expanded tax holidays to include items other than typical back-to school necessities. For example, Alabama, Florida and Texas enacted tax holidays that exempt emergency preparedness items such as generators, batteries, portable self-powered light sources and common household items. Lawmakers in Mississippi and Tennessee authorized tax holidays for firearm and hunting supplies. Florida began offering a tax holiday for Energy Star products in 2014, but now exempts those items year-round—at least through June 2024. Energy Star is the energy-efficiency certification program run by the Environmental Protection Agency. Other states followed suit, enacting their own sales tax holidays for Energy Star products, though for limited periods.
Sales tax holidays are supported by constituents, legislators and retailers alike. Constituents save money from the tax break on essential items, while retailers enjoy the surge in traffic and sales. Tax holidays are beneficial for legislators, too. They can offer constituents tax relief at a modest cost and gain political favor in return. Despite the holidays’ popularity, however, policy experts on both ends of the political spectrum tend to agree that sales tax holidays are not an efficient mechanism to offer impactful tax relief.
Tax holiday downsides?
Critics argue that tax holidays are not directed toward lower-income consumers—who tend to pay disproportionately more of their income in sales taxes—because they are less likely to take advantage of the savings that tax holidays present. Moreover, evidence indicates that consumers shift their spending behavior to align with tax holidays, rather than increase their overall spending. In other words, shoppers wait for the tax holiday to purchase goods they might have bought anyway.
The cost of tax holidays is another concern. The Institute of Taxation and Economic Policy estimated the cost of tax holidays for state and local governments to be over $1 billion in 2022 and almost $1.6 billion this year. Some state policymakers have taken note. Sales tax holidays were suspended in Washington, D.C., Georgia, Massachusetts and North Carolina to avoid losing out on revenue.
The burden of sales tax holidays extends to some businesses, too. The administrative work required to exempt eligible products from sales tax can be time-consuming and difficult because the list tends to be very specific and limited to a dollar amount. Additionally, businesses must ensure that local taxes are applied when local governments opt out of state sales tax holidays.
Despite the arguments against the holidays, consumers support them and, for now, states continue to enact legislation allowing for multiyear sales tax breaks.
2023 Sales Tax Holidays
Here’s a list of states with sales tax holidays this year.
Andrea Jimenez is a policy analyst in NCSL’s Fiscal Affairs Program.