Sales Tax Holiday?

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.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

134 replies on “Sales Tax Holiday?”

  1. Seems like a waste of time unless there’s evidence that it convinces people to buy things they wouldn’t normally buy. Otherwise, it’s just moving purchases around and causing congestion on the sale days.

    It may be a bother to some retail workers, which is a shame, but it probably doesn’t hurt anything otherwise.

    1. If I understand the arguments, tax holidays not only do not benefit low income working families but harm them: fraud opportunities, and last minute working schedule changes. How can one vote yes after reading this?
      As usual many thanks for sharing your primary sources.

  2. Dear Will,

    If I hadn’t read your thoughtful comments I might. have been in favor of having the ” tax holiday” even though personally it has never made the least difference to me, but in view of what you write I would encourage you to vote against having it.

    Sincerely,
    Robert

  3. Will,
    I’ve never thought the idea of tax holiday made much sense. Of course, I’m a tax and spend liberal, but for all the persuasive arguments against it you provide above, I vote no.
    Jonathan

  4. Sales tax holidays are a gimmmick that do not contribute to economic development or well being.

  5. Though over the last few years I have bought only a television, refrigerator and stove. I do not spend just to save a couple of bucks. Given the state of our economy and infrastructure, I feel the loss of that sales tax revenue is harmful. I would that money go towards repairing our roads and bridges. Also, some of the $24.56 million could go to education, the needy and senior citizen relief that is so often overlooked,

  6. I have heard complaints about stores raising prices during these holidays, so people would actually not be paying less. And your thoughts about the problems and complications make such a ‘holiday’ sound even more problematic. I think you should vote against it.

  7. I have bought floor lamps,a vacuum and small furniture pieces when aware of the tax weekend.many a time I have been away and missed.With your valid points one is talking of saving on average of between $7 and $60 dollars which with funding of important subsidies in jeopardy does seem foolish.I support you if veto. There is the joy of thinking you are getting a better deal but the cost to your community is high.

  8. I’d encourage you to vote against it. Given that the evidence does not show any significant stimulative impact and it just drains money from the state (which is always suffering from constrained funds), voting against it would seem the responsible action to me.

  9. Will, if (as is likely the case) the holiday mainly shifts the timing of big ticket purchases that people were going to make anyway, the program is not worth it. People anticipate a temporary holiday and the effect becomes neutral.

    In a related vein, I would suggest a toll holiday on the Sturbridge exit of the Mass Pike on Wednesday before Thanksgiving and Thanksgiving morning.
    I and thousands of fellow travelers have wasted countless hours in delays as the toll booths are overwhelmed, even with Easy Pass. I would gladly pay a nickel higher toll every other day of the year to make up any revenue loss on Thanksgiving.

  10. Agreed, the sales tax holiday is a bad idea. No real benefit, just a gimmick and a shifting of tax burden from people who have time to go shopping on a particular date to those who don’t. And as a conservative, I hope nobody thinks that conservatives are dumb enough to believe the tax holiday is any real kind of tax break.

    Please do what you can to kill it. Then perhaps the General Court can move on to the really outrageous tax holiday–the one that’s only available to Hollywood, the film tax credit. Here’s hoping you can finally slay that demon this year too.

  11. W

    I don’t support the tax holidays. These types of programs may be appealing to taxpayers but they are not effective at doing anything other than giving away revenue.

  12. I believe, based on all I have read, that sales tax holidays are a waste of valuable time for legislators and anyone else who is supposed to benefit. I also think it is inappropriate for gov’t to get involved in subsidizing marketing in the private sector…and I assume that free market types would abhor this activity.
    So if we have no evidence of benefits, why on earth continue?

  13. For the most part I am against it. I would rather see the money go to infrastructure repairs and education. However, many do look forward to the tax holiday and actually wait until that weekend to purchase items that they need.
    The merchant should share in the expense as they profit from it the most…by jacking up prices and luring consumers into their stores and being able to take advantage of impulse buying.

    Bottom line…I say vote no.

  14. I would support a “no” vote. The sales tax is an essential revenue stream. The retailers who need the state’s help are the local independent retailers, not big box chain stores.

    1. Just to add to Jan’s point: the cost of reprogramming cash registers is negligible to the box stores–who gain the most from the sales tax holiday gimmick–while mom and pop stores have to manually tweak workarounds to their simpler point of sale systems.

  15. Only reason to keep it is to help families manage “back to school” expenses.

    Otherwise, vote against it and chip away at the state’s deficit.

  16. I used it one year for the cabinets in remodeling my kitchen and another year for appliances. I would otherwise have bought those things anyway. I can from a state without it, and first learned of it when I moved here. I see no point. It seems to favor those with more discretionary money to spend.

  17. I have mixed feelings about it too. I do work in retail, furniture sales. Most of our upholstered furniture is made in North Carolina (so that is good). Some folks do look for this tax break to buy furniture, and you are right about other promotions being suspended for this timeframe. Often there are other promotions right behind the tax holiday for Labor Day. Everyone wants a bargain.

  18. Will,
    I agree with the direction you are leaning on this. Stores, not the state, should be creating their own buying incentives. Because shoppers will buy what they need eventually anyway, having a tax holiday isn’t worth the loss in state revenue. I believe it also causes a slow period for stores before and after the tax holiday that is not beneficial to anyone.

  19. I agree that it is not all that beneficial to the taxpayer and in the end a loss of millions to the budget which currently could use a little extra help. Please vote NO this year for the tax holiday.

  20. Lots of citizens love the idea. They feel they are getting a break. Retailers have a great weekend. On the show Greater Boston, the three panelists wanted to see the tax expanded to the meals tax. Sue O’Connell from Bay Windows said August for retailers can be the dog days of buying. Just had me think of this in a different light.
    With that said, losing $23 million is a hunk of change needed on the state level too. Sort of a Hobson’s Choice.

  21. The Senator’s comments frame my view as eloquently as could be said.

    Why give away the revenue we so desperately need? People just wait for the tax holiday to do their shopping and so the boost to the economy is nil.

  22. Will,

    I understand the issues you raise but in the the end the sales tax holiday gives the beleaguered Mass resident a break. I think we should approve it.

    Thanks

  23. I can support a no-vote.
    I have only used this “holiday” once and, then, cynically: the year my daughter left for college and needed a better computer. Weighed against the tuition bill, the savings were a joke. As a teacher with 44 years of experience — and counting — I appreciate the the data and critical thinking here. Will, you get an “A” for that. I hope supporters who follow this site will disseminate it as best they can with a goal of reducing the economic illiteracy that seems to plague us.

  24. Given the budget issues, I’d rather not have this “holiday.” People don’t spend more, they just postpone spending until the tax holiday, so it’s a net loss with no gain for the state budget. I really doubt the numbers that say it gains us anything.

    INMO, vetoing kindergarten funding is very short term thinking.

  25. Will,
    Ask yourself this:
    Is the biggest proponent of the sales tax holiday the lobby for Massachusetts retailers or activists representing the working poor?
    You know as well as anyone that the sales tax is a regressive tax that only gives lip service to real tax reform.
    How about some real tax reform where the lowest members of society don’t give away the highest proportion of their income?

  26. I am fine with a no vote. People can get just as good deals during sales. I think it’s a feel-good savings in the short term but not really beneficial for all, for the reasons you outlined and more. I encourage you to vote no. Thanks for asking.

  27. We should NOT have tax holiday>. It means very little and simply changes the purchase date. We need the revenue!

  28. I was waiting to buy a snowblower as the retailer said sales tax holiday was the only possible opportunity to save on one. I am fine with a no vote.

  29. will–I think the question “is it a good thing” is the wrong question. the better question is, given what we know (as you cite in your comments) about the effects or lack of effects from this effort, could the money be BETTER spent on something else (where we know the effects are bigger or more certain) (as you note about the expanded kindergarten). I would think that we could take the revenue lost and put it to better use (gee, if nuthin’ else, one could devote it to low-income weatherization and serve all sorts of agendas!).

  30. The sales tax holiday never made any sense to me but I do admit taking advantage of it two years ago to buy large screen TV. It was a planned purchase I would have made regardless of the tax break. I join any others who would strongly urge the discontinuance of this statewide money loosing idea.

  31. I don’t think there has ever been any data that has shown an overall increase in business because of the sales tax holiday. The message it sends is that the state doesn’t really need all of the money that it collects – exactly the wrong message to send if you believe there are unmet needs.

  32. I don’t think the sales tax holiday is a good idea. As a consumer, you really don’t save that much, but the loss in revenue to the state is huge!

  33. Sales taxes are regressive and hit poor people the hardest. They should be abolished except for luxury goods. Revenue could be made up with a carbon tax. It’s time to start rethinking the tax structure and making it more progressive. We should be taxing behavior that we don’t want. And taxing wealthy people to pay for education and other critical needs.

  34. Please vote against. As you know taxes pay for good and useful things. Staff at group homes don’t get a “tax holiday ” from having to do their jobs. I have never seen anything pro this that is convincing. Thanks as always.

  35. Will, I am so glad to see you raising this issue. I have long wondered why this tax holiday has been continued, year after year. I have to assume there was a moment when it made enough sense to introduce this as a way of stimulating commerce, but never has it made sense to me otherwise. Indeed, $25m is a lot of revenue for the state to forgo at a time when critical needs are going unmet. It seems to me that if someone is going to make a big purchase, they’ll make that purchase sooner or later without the incentive. I would prefer the holiday not be continued. Thanks for asking.

  36. I am against it. The state needs the revenue, especially given the cuts in the governor’s budget. Social services should not be cut so that people can buy appliances without having to pay sales tax.

  37. The sales tax holiday is economic nonsense…a form of hocus-pocus! It does not provide and significant stimulus to the Mass economy. Maybe during the recession it had some justification for helping Mass residents, but that need is no longer in place. Please vote NO.

  38. 7 Cherry Street
    Will,
    I do not support the tax holiday. Your arguments against it make sense to me. Plus I wouldn’t buy something just because there was a tax holiday.

  39. I think tax holidays are a waste of time. People seem to like them because they like to avoid taxes, but they’d do better to wait for a sale, and then pay tax on the sale price. And the cost to the state in lost revenue is a serious problem. I would support you in opposing it.

  40. Will,
    For all the reasons you mention I’ve never been in favor of repealing (in part) the sales tax for one August weekend.

  41. Will
    I with you on the Tax Holiday. The State Need the Money For other things not the Tax Holiday.

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