Happy July 2! 14 States Exempt Flags from Their Sales Taxes

July 2, 2014

Lyman Stone
Joseph Bishop-Henchman

Lyman Stone, Joseph Bishop-Henchman

We missed Flag Day this year, which we’ve honored in past years by providing information about which states exempt flags from their sales taxes. Flag Day is the anniversary of when 19-year-old Wisconsin teacher Bernard J. Cigrand asked his students to write essays on the U.S. flag and its significance. This fell on the anniversary of the Continental Congress’s vote in 1777 to adopt the Stars and Stripes, and since 1949, Flag Day has been honored every June 14. But because we missed it then, we’re providing the data today, on July 2, the day the Second Continental Congress of the United Colonies formally voted for independence from Great Britain.

There are 14 states that exempt the purchase of U.S. or their state’s flags from their sales tax. Such an exemption is poor tax policy: states have exempted nearly 60% of consumer sales from sales tax (more than half), often for political reasons. At the same time, many business inputs are subject to tax, meaning that some retail items are taxed multiple times and some (like flags in 14 states) not at all. This micromanagement of consumer decisions disrupts what would otherwise be decisions made on economic factors, not tax incentives or government prodding.

Take West Virginia, for instance. Their exemption for flags is the 49th item in a lengthy list of exemptions. In Vermont, it’s merely the 33rd, but they throw in the wrinkle that it’s only exempt if sold to (or by) a veteran’s organization. Another reminder to keep by the register of Vermont flag vendors.

Here’s the full list:

States That Exempt U.S. and State Flags From Sales Tax

STATE STATUS CITATION
California If sold by a nonprofit veterans organization Cal. Rev. & T. Code § 6359.3
Connecticut Exempt Conn. Gen. Stat. § 12-412(23)
Florida Exempt Fla. Stat. § 212.08(7)(f)
Maryland Exempt Md. Code, Tax General § 11-205
Massachusetts Exempt Mass. Gen. Laws ch. 64H § 6(w)
New Jersey Exempt N.J. Stat. 54:32B-8.26
New York Exempt N.Y. Tax Law § 1115(a)(11)
Pennsylvania Exempt 72 Pa. Stat. § 7204(32)
Rhode Island Exempt R.I. Gen. Laws § 44-18-30(34)
Tennessee If sold by a nonprofit organization Tenn. Code § 67-6-329
Vermont If sold by or to tax-exempt veterans’ organization Vt. Stat. tit. 32, § 9741(33)
Virginia If sold by government agency Va. Code § 58.1-609.1
West Virginia Exempt W. Va. Code § 11-15-9(a)(49)
Wisconsin Exempt Wis. Stat. § 77.54(46)

Source: Tax Foundation

Enjoy the Independence Day weekend!

More on sales taxes here.

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Note: This is a republication of a blog post we published in 2011. We did not find evidence of any changes in state sales tax exemptions for flags since then.

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A 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.

A tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax.

A 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.