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Summary table (updated October 2006)
[current year holidays]

State Tax Holidays:
Tax Holidays Return to Favor (Updated 8/05)

After losing a certain amount of favor due to the most recent economic downturn, sales tax holidays are enjoying a renaissance. They are like flowers in bloom after a particularly cold winter.

Now that the money is slowly but surely starting to trickle back in, and states again have some room to play with, the holidays are cropping back up across the country. Though the concept’s qualitative benefits have been questioned, sales tax holidays have been unilaterally embraced by politicians and taxpayers alike. In fact, the holiday idea seems to be immune to the skepticism of those that argue it simply isn’t sound financial policy.

First instituted in New York in 1997, the tax holiday seeks to provide relief to taxpayers by instituting a temporary sales tax exemption on certain items for a specific period of time. The holiday typically occurs in August, the traditional back-to-school shopping period, and generally applies to merchandise connected with the new school year, particularly clothing, footwear and computer equipment.

Most states try to target the tax break somewhat by placing a ceiling on the price of eligible merchandise; typically, $100 to $300 per clothing item sold and $1,500 to $4,000 for computer equipment. Any item priced under the ceiling can be purchased tax-free for the duration of the holiday.

State legislatures see the tax holiday as a way to alleviate the tax burden on working families, as well as a means of jump-starting local retail businesses. Critics of the tax holiday, however, see the policy as a gimmick, and less helpful to the consumer than proponents claim.

For instance, if a family spends around $250 on back-to-school clothes, and we factor in an average 6 percent sales tax exemption, then the exemption represents $15 of total tax savings.

State lawmakers on both sides of the party fence support their holidays; Republicans like them because they fit into the agenda of cutting taxes, while Democrats use them to show their advocacy of the working class.

Critics, on the other hand, argue that the holidays represent a modern day “breads and circuses”, playing off peoples’ emotional reaction and pushing the real issue of sound fiscal policy out to the periphery.

By promoting the holiday, the states are blinding the taxpayers to the reality of the other 51 weeks in a year, according to dissenters. Beyond that and more to the point, a sales tax holiday is not a particularly efficient means to providing financial assistance or relief to lower-income taxpayers.

Now that the economic picture is a bit sunnier, though, the holidays are thriving. The number of states holding such a holiday is back at twelve, near its apex several years ago. States that had recently dumped their holidays have jumped back on the bandwagon, most notably Florida, one of the first trailblazers to instill a holiday back in the late 1990s.

Massachusetts will hold an all-encompassing holiday for two days. From August 13-14, all retail items in the state will be exempt from state taxes.

The twelve states that have enacted sales tax holidays for 2005 are: Connecticut; District of Columbia; Florida; Georgia; Iowa; Massachusetts; Missouri; New York; North Carolina; South Carolina; Texas; and New Mexico.

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