The beginning of summer marks the end of the school year, the start of grilling season, and the eve of Independence Day celebrations complete with fireworks displays. For those of us in the state tax arena, it also signals a round of “sales tax holidays” in several states. Most of the tax holidays apply to back-to-school purchases of clothing or school supplies for a few days in August. Some other tax holidays apply to energy efficient products. Louisiana is offering a sales tax holiday in September for purchases of guns and ammunition.
Sales tax holidays started in 1980, when Michigan and Ohio briefly experimented with tax breaks on automobiles. New York revived the tax holiday in 1997, with a temporary tax break on clothing priced up to $500. The tax break was intended to fight the tide of shoppers crossing into New Jersey and other neighboring states with lower sales taxes, Bloomberg BNA's Dolores W. Gregory explained in a 2010 article.
But not everyone is a fan of these short vacations from sales taxes. “Despite their political popularity, sales tax holidays are based on poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform,” according to a report issued last year by the Tax Foundation.
The Tax Foundation found that “sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings.”
By Steven Roll
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