Sales Tax Slice: Sales Tax Holidays Continue to Please Consumers; Disappoint Policy Experts

As a new school year looms on the horizon, the back-to-school shopping season is upon us. Parents across the country are whipping out their wallets and pocketbooks to prepare. With some states offering sales tax holidays this month on items such as qualifying backpacks, clothing, and school supplies, many shoppers might still be recovering from their post-shopping endorphin rush.

Not so in New York—there are no sales tax holidays in that state. However, last week the Tax Commissioner jumped at the opportunity to remind folks that “[e]very day is a New York Sales Tax Holiday.” Why? Because with New York’s “constant exemption,” shoppers can always purchase clothing or footwear tax-free if it costs less than $110; there is no need to limit the holiday to just a brief weekend or a few days.

States’ varying approaches to sales tax holidays highlight the difficulty that tax professionals face in understanding and tracking state tax laws. On any particular purchase, State A might impose sales tax like normal, State B might not impose tax during a sales tax holiday, and State C might offer tax-exempt treatment all year. Keeping abreast of state legislatures’ activities becomes a challenge.

Further, in any given state, it can be difficult to define which purchases are exempt and which are not. For example, a state might exempt clothing purchases during a sales tax holiday. But would that state exempt wristwatch purchases? Belts? Sunglasses? Alternatively, a state might exempt computer purchases during the sales tax holiday. But would that include a tablet computer? What about that tablet’s case, cover, or stand-alone speakers? What about a computerized wristwatch? The devil is in the details. Drafting an airtight bright-line enumerated list is a time-consuming and challenging—if not impossible—exercise for a state legislature.

Strong arguments exist for a simpler sales tax system among the several states, or at least one in which states agree on some common key terms. Advocates at organizations like the Tax Foundation have long argued that sales tax holidays are mere political gimmickry, not good tax policy. Politicians and businesses tend to disagree and point to alleged economic benefits, such as increased foot-traffic in stores during the holiday period. And though it can be tough to quantify those claims, few voters would kick a gift horse in the mouth by favoring more taxes on their purchases.

The message here: sales tax holidays please consumers and elected officials, and they tend to disappoint policy experts. But whether you’re more “we need a holiday” or “the tax code is too complex,” perhaps in the end it’s a moot point—we’ll all be at the mall with the other shoppers. I’ll see you at Auntie Anne’s.

Continue the discussion on LinkedIn: Are sales tax holidays good tax policy?

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