New Hampshire’s 365-Day Sales Tax Holiday

August 4, 2005

Throughout August, Massachusetts parents and children will stock up on notebooks, clothes, and backpacks in preparation for a new school year. Many of them will confine their back-to-school shopping to August 13 and 14, since those days are “tax holidays” in Massachusetts, which means all purchases under $2,500 are exempt from the state’s 5 percent sales tax.

This year Massachusetts joins ten other states and the District of Columbia in providing sales tax holidays (click here for a chart of each state’s exempt items and other details).

But now it seems Massachusetts might be upstaged by its neighbor to the north. According to the New Hampshire Union Leader, New Hampshire Governor John Lynch has announced a new advertising campaign targeted at Massachusetts residents. New Hampshire will spend approximately $40,000 to run an ad in the Boston Globe on August 7, 10, and 11, proclaiming, “365 vs. 002 . . . Tax-Free Shopping Days (for those of you keeping score).”

New Hampshire is one of only five states without a sales tax and is therefore a popular destination for shoppers from neighboring states, especially those living near the border. Gov. Lynch is keenly aware of the lure of tax-free shopping:

“There is no need for shoppers to pack all of their shopping into two days during a beautiful summer weekend, when every day is a sales tax holiday in New Hampshire,” Lynch said.

Alice DeSouza, director of the state’s Division of Travel and Tourism Development, told onlookers the state annually welcomes about 27 million visitors. The link between the Granite State’s permanent tax holiday and tourism is “significant,” she said.

Tax holidays are popular with consumers, but if a state wants to bring in more non-resident shoppers, improve its economy, or give taxpayers a break, a better solution is a consistently low sales tax rate–-or none at all—rather than a one- or two-day tax holiday.

As Curtis Dubay has written, sales tax holidays are poor tax policy because they distort consumer spending, decrease stability in the tax code, and increase retailers’ compliance costs.

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