Do Sales Tax Holidays Ever Make Sense?

By :: August 18th, 2014

Politicians love sales tax holidays as good campaign fodder. Retailers celebrate them with gaudy signs announcing tax-free shopping, and consumers line up to take advantage of the deals. But economists and policy analysts across the ideological spectrum condemn them as poorly targeted tax policy that produces little economic benefit. Is there any fiscal justification for all this feel-good shopping?

More than a third of states that levy a general sales tax (17 out of 45) will stage sales tax holidays this year, most of them in late summer when clothing and school supplies are briefly exempt from the sales tax before school starts. New York held the first sales tax holiday in 1997 to encourage residents to purchase clothing in-state instead of across the Hudson in New Jersey where clothing is never taxed. Other states, often those facing competition from neighboring states, soon joined suit: seven states had holidays in 2000, rising to 15 states plus the District of Columbia in 2006.

Since then holidays have been added (Arkansas, Mississippi, Oklahoma, and Tennessee), repealed (DC, New York, and North Carolina), and dropped but then brought back (Florida, Georgia, Louisiana, and Massachusetts), but the number of states with holidays has roughly stayed the same. States with sales tax holidays are mostly clustered in the South (12 of the 17 states), and are almost nonexistent in states west of Missouri (see map).

Every state offering a sales tax holiday this year ties one of its tax breaks to back-to-school shopping, exempting clothing, school supplies, and/or computers from the sales tax in July or August. Louisiana and Massachusetts go further and extend their late-summer tax exemptions to all tangible personal property. Eight states offer additional sales tax holidays to encourage other timely purchases (see map). Florida, Louisiana, and Virginia exempt hurricane-preparation equipment from the sales tax for a weekend in late May and Alabama has a similar holiday in February. Florida, Georgia, Maryland, Missouri, Texas, and Virginia have sales tax holidays (at various times) for energy-efficient products. And Louisiana stands alone with its sales tax holiday for firearms, ammunition, and hunting supplies.


Sales Tax Holidays, 2014

Sales tax holidays don’t make sense as tax policy. While ostensibly a tax break to help working families afford the costs of sending kids back to school, the holidays are more beneficial to affluent shoppers, who have the means to change the timing and amount of their purchases. And because consumers are mostly shifting (rather than increasing) their purchases, the holidays do little (if anything) to boost economic growth.

But there are two reasons why sales tax holidays might not be all bad.

First, as policy-makers search for ways to make their states more competitive, a sales tax holiday might be the least-bad option. Sales tax holidays don’t cost much revenue because they last only a few days and the prices of eligible items are typically capped. For example, Maryland's FY 2013 tax holidays cost about $11 million, less than a third of a percent of the state’s $4.1 billion in sales tax revenue collected that year. Meanwhile, North Carolina recently eliminated its holiday but deeply cut its income and corporate taxes in a tax reform package. The sales tax holiday cost the state $14.5 million in 2011, a fraction of the half-billion-dollar price tag of the tax cuts this fiscal year. And if the economy goes south or adequate revenue does not materialize, holidays are far easier to change than other tax policies.

Second, shifting the timing of consumer’s purchases is sometimes worthwhile. That’s not likely the case for back-to-school holidays—families buy clothing throughout the year, not just in late summer—but encouraging residents to stock up on emergency supplies before hurricane season could help when storms hit.

In some situations, sales tax holidays can make sense. But generally, they’re bad tax policy unless the alternative is large tax cuts with dubious growth assumptions, and not just for a weekend but for the whole year.


  1. Michael Bindner  ::  2:15 am on August 19th, 2014:

    Poor families often benefit from free school supplies if they go to a Title I school, so these holidays don’t apply to them at all (we picked up ours day).

    Do they actually encourage hurricane preparedness? Maybe, but a recent hurricane probably does that more acutely – and the best thing to do in those cases is to move people away from the shore. Of course, many shore people are rich and have another home anyway (those that serve them are poor). The rational policy would be to simply condemn most of this property – but the lawyers and lobbyists of rich beach dwellers and vacationers will have nothing of that.

    Which brings us to the real reason we have tax holidays – people give donations to state government to get them. Its most likely a payoff to industry lobbyists. The only way to stop them is publicly funded elections – which rich lobbyists and donors will never allow.

  2. Do tax-free holidays make sense? | The News Gazette  ::  1:50 pm on August 20th, 2014:

    […] post Do Sales Tax Holidays Ever Make Sense? appeared initial […]

  3. Do tax-free holidays make sense? | News Today  ::  4:33 pm on August 20th, 2014:

    […] post Do Sales Tax Holidays Ever Make Sense? appeared initial […]

  4. TAX FREE WEEKEND GA 2014  ::  6:01 pm on August 20th, 2014:

    […] TaxVox » weblog Archive Do gross sales Tax holidays Ever Make experience … […]

  5. TAX FREE WEEKEND GA 2014  ::  7:58 pm on August 20th, 2014:

    […] TaxVox » weblog Archive Do sales Tax holidays Ever Make feel … […]

  6. Ernest  ::  5:58 pm on August 21st, 2014:

    Of course, if you want to build teamwork, you will definitely want to practice together.
    So strap on all your paintball gear and load up those paintball
    guns! Work on offensive and defensive strategies, code words, “what-if” scenarios, and more.
    Learn from the opposition in addition to your personal teammates.
    Closely discover other paintball gamers to build up new and winning
    approaches for potential online games. Does the opposition team talk greater than your crew does?
    Will they seem to be far more structured? Paying attention to the way your
    opponents come together might help enhance your team’s overall
    performance. If your team is lacking in that area, take
    a look at your opponents paintball gear and see.
    This will significantly effect your game play

    My website: paintball shop – Ernest

  7. paintball guns  ::  9:08 pm on August 21st, 2014:

    If you want to build teamwork, you will definitely want to practice together, of course.
    So strap on all your paintball load and gear up those paintball guns!

    If” scenarios, and more, work on defensive and offensive strategies, code words, “what-.

    Learn from the opposition together with your individual teammates.
    Closely discover other paintball participants to produce new and succeeding strategies for
    future video games. Does the opposite team talk more than your staff does?
    Will they seem to be much more arranged? Paying attention to how your opponents come together might
    help enhance your team’s functionality. If your team is lacking in that area,
    take a look at your opponents paintball gear and see.
    This could greatly effect your game play

  8. visit my website  ::  12:36 pm on August 23rd, 2014:

    I’m going to immediately take hold of your rss after i are unable to to find ones e-mail request weblink and also ezine services. Are you experiencing any? Generously told me to ensure that I may simply just join. Cheers.

  9. Roseanne  ::  11:52 am on August 27th, 2014:

    I know this website gives quality based articles and extra data, is there
    any other web page which gives such information in quality?

    Here is my website – how to make blog (Roseanne)

  10. Lenny Goldberg  ::  4:56 pm on May 5th, 2015:

    You miss a major part of the critique, which is tax incidence: retailers may discount less during a tax holiday and therefore the benefit goes to the retailer, not the taxpayer, which is partly why retailers often push these things on the states. If the only favorable thing you can say about tax holidays is that they’re a less-bad policy option than deep corporate and income tax cuts, that’s saying nothing. Minor bad policies (holidays) should not be suggested as an alternative to major bad policy.

  11. memorial day quotes  ::  6:34 am on May 14th, 2015:

    Hello, fantastic recommendation and an fascinating article, it is going to be
    fascinating if this is still the situation in a few
    years time