Back-To-School Sales Tax Holidays Are Going Out Of Style

Image courtesy of Arks Endeavors

It’s a time-honored back-to-school tradition: some states use the season as an excuse to offer tax holidays. That’s when they suspend the sales tax on certain items, like new clothing and school supplies, to decrease the financial burden on parents and encourage everyone to shop a little more. While shoppers love it, this doesn’t really work as an economic stimulus, since shoppers just shift planned purchases from other times to the tax holiday.

That’s why some states are doing away with tax holidays and finding that residents aren’t really outraged. In Massachusetts, the tax holiday led to an ironic shift in funding: the estimated $25.5 million that would have been collected in taxes last year meant that the state didn’t put its customary amount of money away in a fund used for…public school construction. Georgia estimates that it misses out on $70 million in tax revenue during its tax holidays every year.

Other problems with tax holidays, according to the non-partisan Institute on Taxation and Economic Policy, include that they favor wealthy people who can easily delay purchases, and that they benefit anyone who happens to be shopping in a state, not just its own residents.

Tax-Free Back-to-School Shopping Over as States Cancel Reprieves [Bloomberg]
Sales Tax Holidays: An Ineffective Alternative to Real Sales Tax Reform [ITEP]