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For the past 11 years, a growing number of states have held sales tax holidays, during which they exempt certain items from state — and often local — sales tax for a few days. Sixteen states and the District of Columbia have scheduled 25 tax holidays in 2008, most of which occurred in August. Holidays most frequently exempt clothing and school supplies, but some exempt computers, energy-efficient appliances, or hurricane preparedness items..
For the past 11 years, a growing number of states have
held sales tax holidays, during which they exempt certain
items from state — and often local — sales tax for a few
days. Sixteen states and the District of Columbia have
scheduled 25 tax holidays in 2008 (see map), most of
which occurred in August. Holidays most frequently
exempt clothing and school supplies, but some exempt
computers, energy-efficient appliances, or hurricane preparedness
items. Every state except South Carolina limits
the prices of exempt items, typically to $100 for clothing
and to between $15 and $100 for school supplies. Vermont
and Massachusetts exempt nearly all purchases of
tangible property less than $2,000 (Vermont) or $2,500
(Massachusetts), while Louisiana’s tax holiday, also on
most tangible personal property, exempts the first $2,500
of each item. Sales tax holidays
will affect about 97 million
people in 2008 — nearly
one-third of the population of
states with sales taxes.
States vary in their treatment
of local-option sales
taxes during a tax holiday.
Some states (such as South
Carolina) lift all local taxes
statewide, while others (such
as Missouri) let local governments
opt in or out of participating
in the tax holiday.
Tennessee suspends all local
sales taxes during its holiday,
but reimburses local governments
for lost revenue.
New York created the first
sales tax holiday in 1997 to
encourage residents to buy
clothing in-state rather than
traveling to New Jersey,
which levies no sales tax onclothing. When states had large budget surpluses during
the economic boom of the late 1990s, they used sales tax
holidays to provide tax relief, but justification for tax
holidays changed as the economy declined in recent
years. They are now promoted mainly as a way to help
parents with back-to-school purchases. And budget deficits
have taken a toll: Maryland canceled its holiday from
2007 through at least 2009 and Florida canceled both of its
holidays for 2008.
Sales tax holidays can affect consumer behavior in
several ways. Consumers may alter the timing of their
purchases to fall within the tax holiday to take advantage
of the suspended tax. The holiday also encourages people
to buy cheaper items priced under the caps. Finally,
consumers may travel to a neighboring state to avoid
their own state’s sales tax. Of course, that would leave
them liable to pay use tax on their purchases in their
home state — but almost no one pays that and states
rarely enforce it.
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