Incentives Watch: Back to School Means Back to Sales Tax Holidays, But Are They Worth It?


It’s that time of year again – the end of summer signals back to school for many families. And it also signals the start of various sales tax holidays, as many states offer various sales tax holidays in the beginning of August. In 2012, 17 states will offer sales tax holidays, according to the Tax Foundation’s special report. These holidays offer 2-3 day sales tax exemptions on various clothing and school supplies. 

Massachusetts recently enacted a sales tax holiday, which will take place on August 11 and 12, according to a masslive.com article. And consumers in North Carolina are getting ready for the state’s sales tax holiday, which begins this Friday. Known as the “summertime Black Friday,” retailers are preparing themselves for the big event, according to the newsobserver.com.

 Although popular, the effectiveness of sales tax holidays has been questioned. According to a policy brief by the Institute on Taxation and Economic Policy, sales tax holidays do not actually increase sales; instead, they simply shift the timing of the sales that consumers had already planned on making in the first place. Moreover, some retailers actually increase their prices during the sales tax holiday, effectively nullifying the tax break, the brief notes.

In addition, those most in need of the sales tax holiday are often the least able to take advantage of it, according to the brief. For example, low-income consumers are often unable to wait to make their purchases because they have less disposable income, whereas higher income taxpayers are able to adjust the timing of their spending accordingly. And, for those low-income taxpayers who do not have children, such as the elderly, the sales tax holidays do little to help.

Sales tax holidays are also costly and create administrative burdens. Since sales tax holidays ultimately do little to change the tax system overall, the Institute on Taxation and Economic Policy suggests creating a low-income sales tax credit that would be permanent. This way, low-income taxpayers would be helped in a more meaningful way, as opposed to the temporary bandage that the sales tax holidays provide, according to the brief.

For more information about the sales tax holidays for each state, check out the Bloomberg BNA Sales and Use Tax Navigator.

­­­­­­­­ In other developments . . .

Illinois enacted legislation amending the Film Production Services Tax Credit Act to add provisions for animated productions and modify the requirements for Illinois labor expenditures, according to a recent Bloomberg BNA Weekly State Tax Reportarticle. 

By: Kathleen Caggiano

Follow us on Twitter at: @SALTax
Join Bloomberg BNA's State Tax Group on
LinkedIn