The Mississippi House of Representatives is considering a bill that would create a new state sales tax holidaySales tax holidays are periods of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back-to-school supplies, clothing, computers, hurricane preparedness supplies, and more. for firearms, ammunition, and other hunting equipment, similar to a firearm holiday in neighboring Louisiana. The bill cleared the House Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is one of 29 U.S. House of Representative committees and is the chief tax-writing committee in the U.S. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. last Tuesday.
[A]rchery equipment, accessories, animal feed, apparel, shoes, bags, float tubes, binoculars, tools, firearm and archery cases, firearm and archery accessories, range finders, knives, decoys, tree stands, blinds, chairs, optics, hearing protection and enhancements, holsters, belts slings, and off-road vehicles and vessels such as all-terrain vehicles, airboats, pirogues and other boats.
The legislation’s sponsor, House Ways and Means Committee Chairman Jeff Smith, touted that the holiday “covers everything but the lunch you bring with you.”
Mississippi already has one taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. -free weekend in the summer for clothing under $100. Sixteen other states have similar holidays for items such as back-to-school supplies, computers, and Energy Star appliances (check out our report on the topic for more details).
We’ve often been critical of sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. holidays in the past—most recently in response to a proposal by Florida Governor Rick Scott. Below are the arguments we made against them then, but they’re equally relevant here:
- Sales tax holidays do not promote economic growth and do not pay for themselves. Proponents argue that consumers buy more of the tax-free goods since they are now cheaper and will make impulse purchases on other items, thus generating more tax revenue. This doesn’t happen in reality. All sales tax holidays do is shift consumption to a different point in time, not generate more overall sales. (Here are a few studies demonstrating this effect: one, and two.) There’s also plenty of anecdotes on the shifting of consumer purchases to take advantage of a holiday (check out footnote 7 of our paper on the topic, where we summarize quite a few).
- Sales tax holidays don’t create permanent jobs. If anything, retailers might have to add extra part-time or temporary employees to help during the holiday due to increased foot traffic. This has big associated compliance costs. Imagine having to hire and train employees just for this short period of time. It wouldn’t merely cost a significant amount of time, but it would have monetary costs, as well.
- Products exempted from tax during the holiday are arbitrarily picked. For example, take a look at what’s in and what’s out during Florida’s existing sales tax holiday. Backpacks aren’t subject to sales tax, but briefcases and duffel bags are. Notebook filler paper is tax-free, but computer and printer paper isn’t.
- Sales tax holidays have real economic costs for businesses because of their complexity. Businesses operate the other 360 or so days of the year under a sales tax system that is entirely different than the one they must comply with during the holiday. Large and small businesses alike must account for the detailed and arbitrary rules that apply under the holidays. For example: “Mississippi’s [existing] sales tax holiday regulations…permit the use of coupons, prohibit layaway sales but permit rain checks, and exclude shipping costs from the holiday. Virginia’s sales tax holiday permits layaway sales and rain checks, does not permit rebates to lower the sales price, and excludes shipping but includes handling…Texas exempts layaway sales as well as shipping, handling, and even installation costs as part of its Energy Star product tax holiday.”
The bill doesn’t have a fiscal note yet and awaits further action in the House. Mississippi lawmakers should remember that sales tax holidays are a gimmick—not real tax reform.Share