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. expand the tax holiday to include autommobiles w/ some kind of a provision that the dealers will not take advantage of the consumer by jacking up the price or removing incentives.
    I’m willing to bet they will reap a bonanza from the buyers
    The state can cap it @ $10,000, anything above that the tax will be paid

  2. Agree with your points. Tax holiday not a good idea. Suggest you vote against.

  3. I hope you can muster enough support to reinstate the state’s contribution to the Belmont community path. Spend just 5 minutes on the Minuteman path in Arlington and you see what a wonderful community amenity a path can be. And, there’s also the climate change / emissions reduction benefit that would result.

  4. I support your inclination to vote against a state tax holiday. The state needs the money.

  5. I tend to agree with you that a tax holiday for cars or other big ticket items made in the USA would make more sense. For instance I might be in the market for a snow blower after last winter’s back breaking non stop shoveling!

  6. I entirely agree with your conclusions and the supporting arguments. The holiday is a retail sales tool, not really focused on jobs. Amazon is already cutting prices substantially to sell during the summer retail doldrums.

    I would rather focus political capital on the urban quality of life in Watertown, Belmont, Arlington, Cambridge and the mobility issues that impact the neighborhoods.

    With declining commuting speeds, 7% in the last decade according to the Boston MPO, and the rising number of commuters, and the swelling desire of the rising younger work force to live urban, and walk-bike-transit and not to car, we have real work to do.

  7. Wish that more legislators would go to the trouble of thinking through (or even rethinking) their decisions on gimmicky events like this that masquerade as being pro-consumer but, in the end, make it less likely that we can find the funds for important programs. Thanks for your thoughtful analysis, Will.

  8. I strongly support it. People who are tight for money wait gmfor that holiday, and many of them check prices ahead of time. When we had two kids in college we bought a front loading, stacking washer and dryer from Sozio, low water usage and wouldn’t have been purchased without the holiday. Also, I disagree with the dismissal of box stores. They employ people. Finally, the disregard for ordinary people who enjoy the tax holiday is a great advertisement for purchasing all sorts of items in NH – from tablets to lawn mowers.

    Diane Covert

  9. I agree with your analysis (and have since the beginning of the holidays).

    I think the overall solution regarding taxes is to educate people on why we have taxes, what the state uses them for, and how in a democracy you don’t get to earmark your taxes (they are for the COMMON GOOD). The misconceptions people have, that politicians are corrupt and misusing public funds must be corrected.

    Thanks for asking!

  10. I agree. Ditch the tax holiday. As you mentioned, consumers are not getting any great benefits and the state is losing revenue. If the goal is to help local retailers, a better approach would be to apply state sales tax to online purchases made from places like Amazon.

  11. After hearing your arguments on both sides, I would say that the lost revenue for the state would be more important to capture, so I would say vote no.

  12. I am not in favor of a sales tax holiday. I agree with your reasoning and would rather the money go to the state budget.

  13. I am 100% in favor of a tax holiday weekend. This drives business to local store which is desperately needed and away from the malls just over the border in NH.

    A better idea is to reduce the sales tax to the old 5% at all times and cut wasteful programs from the state budget.

    1. Agreed, the sales tax differential with New Hampshire killed big retail near the border. I’m willing to believe that. But a one weekend holiday won’t bring it back to life — the businesses just aren’t there.

  14. 9 Kilsyth Terrace

    I am not in favor of the tax break because the state needs tax dollars for programs to help people of low income to advance economically and socially.

  15. I am opposed to tax holiday.

    It seems it just effects the timing of purchases and isn’t stimulating sales that wouldn’t occur otherwise.

  16. I am mostly against the holiday. It is a one off gift that does not mean much. Better to figure a way do things more efficiently and lower sales taxes. Or vote to require that UPS Fedex and the Post office collect MA sales taxes on mail order, & internet deliveries in MA unless the UPS or Fedex customer shows that it collects MA sales tax. Require a level playing field between local and out of state retailers with regards to sales tax.

    I am against adding complexity, it only leads to gaming the tax system. The state has few ways to determine if a sale occurred on the holiday, but may have been arranged before hand and “the transaction for tax purposes happened on the holiday”

    The optics of the holiday look good for the politicians, but then so does cutting taxes look good even if long term it hurts society, commerce, and future economic growth.

  17. I think that the very idea of a ‘sales tax holiday’ confirms and supports the idea that taxes are an onerous imposition by the government, rather than the means by which we enable government to do for us the things we want done. Thus promotion of a sales tax holiday is a contribution to civic miseducation.

  18. Dear Senator Brownsberger,

    I think that the state sales tax “holiday” should be repealed for all the reasons you outlined. Massachusetts can’t afford to give up millions in revenue every year. The cut that included the kindergarten expansion grants is just one example.That shortchanges our investment in developing kids brains so some people can buy gear or appliances. It’s akin to a drug dealer giving a price break to hook a buyer on continuing purchases.

    Sincerely,
    Elizabeth Thompson
    Arlington, MA 15th Pct.

  19. Will,
    I am against the tax holiday in Massachusetts. Why give a group of residents a break just because they happen to be around in the summer and feel they need to take advantage of a tax break?

  20. I appreciate your comments on this. I agree with your position – the sales tax holiday doesn’t really do much for Massachusetts residents or workers. I support maintaining sufficient tax revenues that we are able to help people who are truly disadvantaged in our state.

  21. Hello Senator. I hadn’t given it much thought at all, but your thoughts and arguments against it convinced me it’s not worth it. Thank you for helping me understand; I was particularly struck by your points about retail workers not making much more money in the long run, and having difficulty planning vacations (retail is a TOUGH area for workers ). Thank you. I support your intention to vote against it.
    Janet Kenney
    Brighton

  22. Hi Will

    I share your reservations. I think with the uncertainty about benefits and benefit recipients we should drop the tax holiday.

    I suspect that many who wait for the bargain … well, “Doncha… just love a bargain!?” I wonder how many of the bargain shoppers are needy/ struggling consumers? But we do not have a good way to find out, do we?

    The state could use the tax revenue .

    Best to you!

  23. I think you are right. Furniture stores are now offering the sales tax discount on their own. Time for an end to the holiday.

  24. Hi Senator Brownsberger,

    I agree with your assessment. I do know a few people who have taken advantage of the holiday to buy a new computer, but the timing has never worked for me and I’ve been turned off by all the hype. I tend to replace things when they break which unfortunately don’t usually oblige right before the tax holiday.

    When I have delved into it, I have found that the savings also aren’t great. Like those horrible holiday shopping sales, I tend to stay away.

    Best,
    Marcia Ciro

  25. It has never made any sense to me to have a tax holiday. The state loses valuable revenue and I doubt people actually buy more. I haven’t studied the data, but it just seems illogical and short-term thinking. The earned income tax credit will do more for those who truly need the help.

  26. I’m shocked you have to ask! Why not a permanent tax holiday, but I suppose that would be asking too much. I do not know one person who is against a tax-free holiday weekend.

    Bring it on!!

  27. I favor a NO vote for a sales tax
    holiday, for the very reasons you have laid out.

  28. Will, I agree with you. Given the cuts the governor is making, the money is needed.

  29. Actually, I think the tax holidays are kind of dumb and just pandering. It’s like the tiny little tax cuts that make very little difference for for many people (including those of us who try to buy stuff only when we need it) but add up to big bucks lost for the state. If the state kept that $24M or say, maybe vetos of funding for arts programs (e.g. Landmarks Orchestra)would seem less necessary.

  30. Yes Will, I think you’re right, for all the reasons you list and explain, but especiay because the Mass treasury needs the money. The tax holiday smacks of consumerism. We really should move away from incentives that encourage this behavior. The private sector provides enough incentives if its own.

  31. There should be a tax holiday. There are many in the city, part of your constituency not as wealthy as Belmont, for whom every little but helps, even if it’s only one weekend.

    However, MA should follow the lead of other states and move the weekend to just after the start of school so those buying school supplies — sparents and teachers both — can take advantage. The current weekend is too early; no one knows yet what’s needed for the coming year. Since school funding keeps getting cut, forcing parents and teachers to supply their own books, a 6% cut in price is significant.

    And consider college students for a moment. Have you looked at the price of text books lately? A single organic chemistry book can be over $200. Art history books can be $400 or more. My school supplies last year cost over $1500. But with the tax holiday in August and the required materials list not available until September, there was no way to know what was needed.

    Not everyone is looking for cars and TVs. Some of us are just looking for a little help.

  32. Hi Will. As usual I appreciate your well thought out discussion. I agree it does not make sense to take $25 million out of the budget, especially when it may be largely going to the retailers if they’re offering items at higher prices. However politically, I think it may be hard to sell and not be seen as a Grinch but I’d be fine with you voting against it. As usual it’s the people who are most hurt by the lost state income who will complain about losing it….

  33. I agree with your change of heart and reasoned argument Will. Its a gimmick that complicates the lives of workers and has no measurable impact. Better to focus on substantive legislation.

  34. Thoughtful analysis Will – I say let’s stop doing this. The benefits do not appear to warrant incurring the costs.

  35. +1. Whether or not it was pandering when first implemented a decade ago, the data are in: It doesn’t achieve it’s stated goal. Time to end it.

  36. Will,
    I am also not a big fan of the sales tax holiday. I think it is being used by retailers as a gimmick and hurts businesses before and after that weekend as people hold off on purchases.

  37. I agree with your analysis, and oppose the tax holiday. It seems goofy and a bit gimmicky. If you thought the ‘goodwill gesture’ made the citizenry feel more favorable to the state government, then I defer to your judgment.

  38. The sales tax “holiday” idea never made sense to me – it just changes which week purchases are made, and there is less money to support state and local programs.

  39. The sales tax is a regressive tax that burdens the poor the most. For those who have cars, they can jump over the north border. Let’s get rid of it and make up the lost revenue by raising the income tax an appropriate amount. The taxation structure in Massachusetts is very much broken. This is where the attention should be focused.

  40. we never believed the RIGHT TO PURCHASE with legitament currency a taxable event or source.

  41. The tax holiday is a boon to business. My brother owns a small business. His usual sales for an August weekend are: $3000 on Saturdays and $1500 on Sundays. On the tax holiday weekend last year his sales were $44,000 on Saturday and $15,000 on Sunday. It is not a sales shift from one day to another. The tax holiday offers an incentive for people to shop for items they may not otherwise be able to afford. His business is outdoor grills and hearth products. He runs promotions for the tax holiday weekends whereby he lowers regular pricing to further encourage customer interest. When you tax something you get less of it. Government policies should not be detrimental to economic growth. The private sector provides jobs.

  42. I agree that the sales tax holiday should be vetoed. The most cogent reason comes from one of the links — that the very people hardest hit by a regressive tax in the first place (poor and middle classes) are the very groups that can’t manipulate their budget so that they can make their purchases in that narrow time frame.

    In order to address this, perhaps the alternative of anyone having a SNAP or MassHealth card (denoting limited income) should NEVER have to pay tax, much as nonprofits are excluded. It then creates a gulf — perhaps as little as 1000/year suddenly puts you into that 6.25% regressive sales tax bracket, but it would be a start — and targeting those who need the break, not those who have the discretionary income to take advantage.

    1. Wow, things I’ve never considered, let alone would think as possibilities. Those breaks would certainly help people like me and seniors on SS. But unfortunately the abuses of the system are so rampant and widespread that for those of us who do not abuse the system and play by the rules the state/feds would find a way to punish the miscreants across the board which would affect those who don’t cheat (as always). However, what progressive & forward thinking ideas you have. We’ll never see it bu perhaps one of the future generations of almost-seniors on SSDI or those already collecting Social Security will benefit from those types of tax “holidays”.

  43. definitely against tax holidays:
    – it’s a gimmick
    – we can’t afford to collect less taxes
    – no need to stimulate people to buy more stuff they don;t need

  44. Rather than forego $25M in revenue for something that does not appear to stimulate the economy and probably causes some worker hardship, the state should spend that money on infrastructure or aid to cities and towns and call that a gift.
    Feel good legislation without voter education leads us down the wrong path and costs too much just when we can’t afford it.

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