September 2, 2014

Back to School on Sales Tax Holidays

Thomas Stratmann

Senior Research Fellow

Christopher Koopman

Senior Affiliated Scholar
Summary

With summer nearly over, and school years starting again across the county, many states are declaring this time of year a holiday season of sorts: a “tax holiday” season. This year, 17 states will create tax-free holidays to exempt many back-to-school items from state sales tax.

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With summer nearly over, and school years starting again across the county, many states are declaring this time of year a holiday season of sorts: a “tax holiday” season. This year, 17 states will create tax-free holidays to exempt many back-to-school items from state sales tax.

The history behind these tax holidays is one of politically expedient attempts to compete for cross-border shopping and spur economic activity. New York began this trend in 1997 to compete with New Jersey’s lower tax rates on clothing. Other states then followed suit. In 2005, Massachusetts adopted its own sales tax holiday to compete with tax-free New Hampshire.

In both of these cases, however, the states ultimately abandoned their initial holidays, realizing that what is often politically expedient is rarely good policy. In New York, for example, a study by the New York State Department of Taxation found it wasn’t increasing sales. Instead, shoppers were simply timing their purchases with the state’s holiday, making purchases in New York that they would have made anyway.

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