Sales Tax 101

Why are there no sales tax holidays during the holidays?

by Jennifer Dunn

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We get all kinds of interesting sales tax questions here at TaxJar. A recent one was “Why are there no sales tax holidays during the holidays?”

This is a great question. And, like anything having to do with sales tax, it has a few answers.

1.) Sales Tax Holidays are Designed to Stimulate the Economy During Low Seasonal Demand – In some states, sales tax holidays take place during periods where retail sales are slow. Studies have shown that sales tax holidays can shift the timing of purchases. For example, people may buy a computer during a late summer “Back to School” sales tax holiday rather than waiting until Q4 – when retail sales are already booming – to buy that same computer as a holiday gift. Another example is Florida’s hurricane preparedness sales tax holiday. This holiday is designed to encourage consumers to buy weather safety items early in the season, not make a run on stores when a hurricane looms.

2.) Sales Tax Holidays are Designed to Further State Policies – After Hurricane Katrina, as energy prices soared, the state of Georgia created a sales tax holiday for energy efficient appliances. Not only was this a nice tax break for consumers, it potentially lowered the state’s energy consumption. The same goes for Florida’s hurricane preparedness holiday – preparedness could could potentially save the state money in disaster relief after a hurricane. Many states’ back to school sales tax holidays are aimed at getting children the clothes and supplies they need to get educated.

3.) Sales Tax Holidays are Politically Expedient – States have instituted sales tax holidays both in times of surplus and in times of economic slump. Whether or not they actually stimulate a state’s economy, and some policy groups think they really don’t, any kind of perceived “tax break” is generally politically popular.

Conclusion

Sales tax holidays are politically popular events that, a state can hope, stimulate the economy and complement state policies. There are no sales tax holidays in Q4 simply because the economy is already stimulated by holiday shopping and, while the thought does count, no politician has yet, as far as I know, figured out a way to work holiday gifts into policy. (Of course, I could be wrong about that!)

And, if you aren’t familiar with sales tax holidays and their history, you may want to read our “What are sales tax holidays?” post. We also have a Sales Tax Holiday Guide, download now for free!

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