This week’s 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. map comes from our recent report examining sales tax holidays across the nation. The study explains why, in spite of their political expediency, these “holidays” are poor tax policy, and the map illustrates which states that still have the holidays, what their dates are, and what is included.
Before we look at the map, here is a quick rundown of what our study finds:
- 18 states, primarily in the southeastern U.S., will hold a sales tax holidayA sales tax holiday is a period 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. in 2015, down from a peak of 19 states in 2010.
- 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 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.
- Sales tax holidays create complexities for tax code compliance, efficient labor allocation, and inventory management. However, free advertising for what is effectively a paltry 4 to 7 percent sale leads many larger businesses to lobby for the holidays.
- Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating between products and across time, and distorting consumer decisions.
- While sales taxes are somewhat regressive, this does not make sales tax holidays an effective tool for providing relief to low-income individuals. In order to give a small amount of tax savings to those with lower incomes, holidays give a large amount of savings to higher income groups as well.
- Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.
Now, let’s look at which states still have the holidays.
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Immediately, one notices the localized grouping of states in the south; because the original idea for sales tax holidays was to prevent cross border shopping, it makes sense that after Florida enacted its holidays, other states around it began competing with the Sunshine State.
The variety of items included in the holidays is also interesting. States include everything from bed and bath supplies (SC) to firearms (LA). It's important to note that each state has its own dates and list of items included–which generally corresponds with things like hurricane, back to school, or hunting seasons–along with unique price caps on each item.
For more information on sales tax holidays, read our full report.
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