What is a Sales Tax Holiday?
Sometimes a sales tax holiday is referred to as a sales tax weekend. We’ve mentioned that for a limited time period, a state allows sales taxes to either be waived or reduced on certain items. Usually, the “weekend” is much shorter in duration than other tax holidays and often occur around important events. For example, I some states offer a “Back to School” holiday, which is a great initiative to make certain school supplies tax-free.
Additionally, certain states have tax-free periods for various items, such as severe weather preparedness items, appliances, or children’s clothing. These tax “weekends” are much-needed respites in times when products and services are particularly pricey.
Sales tax “weekends” have been a consistently popular choice among state policymakers, with a total of 17 states holding such holidays. Since 2015, around 16 to 18 states have held at least one sales tax holiday each year, which equates to approximately 37% of states that collect sales tax usually holding a yearly holiday.
It’s worth noting that Alaska, Delaware, Montana, New Hampshire, and Oregon do not collect state sales tax, while in the 45 states that do collect sales tax, the rate ranges from 2.9% in Colorado to 7.25% in California.
Notably, the majority of states that do offer tax-free shopping events typically hold them in August. Some tax-free shopping weekends may occur in July, while others may extend into the first few days of September.
The Purpose of Sales Tax Holidays
Historically, Ohio and Michigan were the first states to enact a sales tax holiday in 1980. The one-time sales tax break applied to all automobile purchases at the time. A few years later, New York also imposed a sales tax break for clothing, which sparked a modern trend in business. The reasoning behind New York’s initial sales tax pause was to reduce cross-border shopping without necessarily reducing the state’s sales tax rate. Nowadays, this temporary tax break has a number of incentives driving its recurring popularity including stimulating economic growth, or incentivizing government investments.
The Economic Impact of Sales Tax Holidays
There is an undeniable impact on the economy during sales tax breaks and holidays. Some of the most significant factors include increased consumer spending and a boost in retail sales. Sales tax holidays in certain states often attract buyers from neighboring states, encouraging them to purchase eligible products at a lower price than in their resident state. Sales tax holidays are also often strategically timed to coincide with times of high consumer spending, such as back-to-school season or other seasonal events. This can provide an additional stimulus to the local economy.
What Items Are Typically Exempted During Sales Tax Holidays?
During sales tax holidays, states typically grant exemptions on specific items from sales tax. However, it’s important to remember that the items eligible for exemption vary based on the state and the type of sales tax holiday being observed. Common examples of items often exempted during these events include:
- Clothing and footwear (excluding accessories)
- School supplies
- Computers and related accessories
- Energy-efficient home appliances
- Hurricane and emergency preparedness supplies
- Firearms, ammunition, and hunting gear
- Diapers and children’s apparel
- Admissions to performances
- Recreational supplies
- Gun safes and safety devices
- Generators
- Hurricane-hardened doors and windows
It’s crucial to know that the specific list of exempted items can change annually and differ from state to state. To ensure you’re navigating the sales tax landscape with current and accurate information concerning sales tax holidays and eligible items, we recommend tagging experts into your corner or consulting the state revenue department.
What Is The Duration Of Sales Tax Holidays In Different States?
Sales tax holidays designate periods during which certain goods are exempt from state (and sometimes local) sales taxes. These holidays’ length varies, depending on the state and the type of holiday being observed. Some states hold annual sales tax holidays, while others necessitate legislative approval each year. The duration can range from a single day to a week or even longer.
How Do Sales Tax Holidays Affect Small Businesses?
Naturally, sales tax holidays can hold significant business advantages, such as increased customer interest, sales, and a competitive advantage. However, it’s important to remember that sales tax holidays may bring along an added layer of complexity, necessitating adjustments to their point-of-sale systems and providing training for employees regarding tax-exempt items.