Yesterday we released an independent report (PDF) analyzing Nevada Governor Brian Sandoval’s proposed Business License Fee tax. The proposal replaces Nevada’s current $200-flat business license fee with a tiered gross...
- The Tax Policy Blog
- State Sales Taxes on Clothing
State Sales Taxes on Clothing
A sales tax that best minimizes economic distortions is one that taxes all final retail sales once and only once. However, most states depart from this by not taxing services while taxing business inputs, meaning some goods have no tax on them while others have multiple sales taxes. And of course, in many states there is a tendency to avoid tax on "necessities."
Putting legislators in the awkward position of deciding which goods and services are luxuries and which are necessities-not to mention deciding which have educational, cultural or artistic value-can cause discord and confusion. The more things are exempt, the more special interests become determined to exempt their good or service, thus driving up the rate on everything else to maintain the same amount of revenue.
One example of this is clothing. 8 states partially or fully exempt clothing from the sales tax. Some clothing, however, is taxed, as not all clothing purchases can properly be considered necessities. Retailers and consumers thus face rules defining the difference, adding complexity to the tax code. At the same time, clothing purchases are a large part of retail purchases, meaning exemptions lead to large revenue reductions; states generally do not cut spending, so taxes are likely to rise elsewhere. Connecticut recently ended its exemption while New York has temporarily reduced theirs.
Table: Sales Tax Treatment of Clothing
as of January 1, 2012
|Alaska||No Sales Tax|
|Connecticut||X||Exemption repealed July 1, 2011.|
|Delaware||No Sales Tax|
|Massachusetts||X||$175 or less.|
|Montana||No Sales Tax|
|New Hampshire||No Sales Tax|
|New York||X||$55 or less. Rises to $110 or less on April 1, 2012.|
|Oregon||No Sales Tax|
|District of Columbia||X|
Source: Tax Foundation; Commerce Clearing House.
NOTE: A previous version of this post erroneously included Texas in the exemption column.
Subscribe to the Tax Foundation Newsletter
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.