Sales Tax Holiday? (134 Responses)

Since 2004 (except in the 2009 recession year), the legislature has voted a sales tax holiday weekend to occur in August. Typically, these votes have occurred in July. I have historically voted in favor of these holidays. They are popular and they seem like good will gestures worth making.

I’m actually starting to lean against voting for the holiday this year. Only 16 states have sale tax holidays. They just don’t work the way we think they should.

The state charges a sales tax of 6.25% on most items (but not groceries or reasonably priced clothing). The sales tax holiday hasn’t applied to automobiles or motorboats or meals or to any individual item over $2,500 in cost. It also hasn’t applied to installment sales. (See 2014 rules.) Many of us think of power tools, appliances and electronics when we think about making purchases on the holiday.

It’s a mixed blessing for consumers. Of course, it is a tax break, but there is evidence that some retailers charge higher prices or give smaller discounts on the sales tax holiday, so, in some cases, consumers don’t get much benefit. See “Sales Tax Holidays Can Mislead Consumers about Savings“.

Clearly, the holiday stimulates sales at a time (dog days of summer), when people aren’t typically buying expensive things. But it may not actually lead to any real increase in economic activity — the holiday may simply shift business from weekend to weekend without actually increasing business. See “Sales Tax Holidays Do Not Promote Economic Growth.”

I’ve never understood why stimulating sales of expensive appliances and electronic products that are mostly made in other countries has any particular benefit to Massachusetts or the United States. So, some big box retailers make a few extra bucks, but most of the items purchased were made elsewhere. The holiday gives retail workers some additional hours, but they may be losing opportunities at other times of year.

The only retail worker I’ve actually heard from complained about the likely need to cancel a vacation. To reduce the loss of sales due to people waiting for the holiday, the legislature always delays formalizing the holiday until the last minute. I’m writing on July 21 and we only have until July 31 to vote an August holiday. The last minute declaration of the holiday does damage the ability of workers to plan.

It’s not good tax policy to create complicated rules that favor certain products but not others — why encourage more electronics sales with a holiday, but not give a holiday for car sales.

Finally, it does hit the state budget — the state waived $24.56 million in sales taxes on the last holiday weekend, which was August 16-17, 2014. The estimated budget giveback from increased economic activity (through corporate and income taxes, etc.) was $3.25 million (according to estimates from the Department of Revenue). There are many unmet needs. $25 million is not big in the context of the budget, but it is nonetheless enough to make a difference in some way — for example, the Governor just vetoed continuing Kindergarten Expansion Grants which have historically run around $20 million year.

Holidays are festive and I am not by nature a grinch. That’s why I’ve voted for the holidays despite the arguments above. But I’m giving it a second thought this year. Your thoughts?

Update on July 30, 2015: Thanks so much to all who weighed in here or by email. I really appreciate the input. I know there are differing views on this, but, in the end, I felt most comfortable voting against this piece. The bill sailed through the House by a vote of 136-20 and the vote in the Senate was 28-11 in favor. The Governor has signed the legislation, so the Sales Tax Holiday is on. Hopefully, we are building towards a decision at some point soon to stop doing this, but here is more information for those considering how to take advantage of it.

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