Sales Tax Holidays 1997-2007 A History 47 State Tax Notes 1001 (March 2008) Ala – Sales Tax Holidays: Politically Expedient But Poor Tax Policy

sales tax

sales taxSales tax holidays are periods of time when selected goods are exempted from state sales taxes.

With exemptions for such targeted products as backtoschool supplies, such holidays have become an annual event in many states, clothing, computers, hurricane preparedness supplies, products bearing the government’s Energy Star label, and even guns. Needless to say, new York State, that is known for high state taxes, sparked the trend in 1997 as a way to discourage border shopping. In 2016, 17 states will conduct sales tax holidays, down from a peak of 19 states in 2010. At first glance, sales tax holidays seem like great policy. With backers arguing that holidays are a highly visible kind of tax cut and provide benefits to lowincome consumers, they enjoy broad political support. You should take it into account. Politicians and other supporters routinely claim that sales tax holidays improve sales for retailers, create jobs, and promote economic growth.

Despite their political popularity, sales tax holidays are on the basis of poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform. Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy. Notice that they represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low income consumers and an ineffective means of providing savings to consumers. Sales taxes are a consumption type tax, or a tax on spending on goods and services purchased by the end user. This idea is known as the benefit principle, The principle underlying sales use taxes to fund government is that individuals should pay taxes in proportion to the benefit they receive from government spending. Consequently, personal consumption is considered an appropriate proxy for government amount services consumed by an individual.

sales taxThus, a tax on consumption is considered an equitable method of paying for government services.


Consumption also has being advantage pretty easy to track, measure, and tax. Many economists also prefer a consumption tax over an income tax because consumption taxes do not tax savings. They largely exempt certain transactions, sales taxes in the United States are consumption taxes.

Broadening the sales tax base while lowering the sales tax rate would mitigate both volatility in revenue collections and the economic harm caused by a high tax rate. Another important feature of good sales taxes is that they tax consumption once and only once. Business inputs, or businesstobusiness purchases that are used to create other products or services, could be excluded from the sales tax base. Otherwise, final products could be taxed multiple times. In practice, this multiple taxation unfortunately occurs in many states.

Sales taxes tend to be inherently regressive with regard to income, as ‘lowincome’ individuals tend to spend a greater percentage of their income in taxable sales than high income individuals.

In an effort to reduce this regressivity, items viewed as basic necessities, like groceries, utilities, clothing, and prescription drugs, are often exempted from sales taxes in the United States. While narrowing the base and necessitating a higher tax rate, these exemptions also benefit ‘high income’ taxpayers. Sales tax reform would broaden sales tax bases while lowering sales tax rates, to produce a system that collects stable revenue with minimal economic distortion. That said, sales tax holidays are a opposite example base narrowing in that they carve out exemptions for certain transactions during certain time periods.

Ohio and Michigan enacted the first sales tax holidays in 1980 when they offered tax holidays for automobile purchases. With the first sales tax holiday for clothing in New York’s objective was to tackle border shopping, it was ew York that sparked the modern trend, residents phenomenon traveling to nearby states to take advantage of lower sales tax rates. Usually, the sales tax holiday gave hope of reducing border shopping without actually need having to reduce the state’s sales tax rate. Actually, in reality, a key motivation has been attempting to stop ‘cross border’ shopping, and perhaps even lure shoppers from other states, while sales tax holidays are often defended on grounds of economic benefits. Whenever, In 2005, Massachusetts adopted an extremely generous weekend sales tax holiday applying to all goods up to in tax revenue by canceling its sales tax holiday in After eight sales years tax holidays, District tax officials found the holiday did not spur enough economic growth to offset the costs. Of course, north Carolina officials found that repealing their sales tax holiday in 2013 would save the state, and with tax the total comes to mainverbmainverbphraseif the shoes are in high demand due to crowds turning out for the sales tax holiday,, a retailer may have to raise the price or risk running out of stock too quickly. Keep reading, Therefore in case he raises the price to 52.

Researchers at West University Florida studied the price effect of Florida’s sales tax holiday in Using 10 apparel types across 10 retail locations, data was collected over a threeweek period to analyze whether before tax prices were comparable before, during, and after the sales tax holiday. Based on the prices observed in Pensacola before the sales tax holiday, it was expected that shoppers would save 167441 consumer worth goods. Due to changes in the ‘beforetax’ various price products, actual savings observed during the holiday were billion per year. From the Tax Foundation Blog. < >From the Tax Foundation Blog.

Leave a Reply

Your email address will not be published. Required fields are marked *