Sales tax holidays are growing in popularity this year with four more states joining nine other states and the District of Columbia in waiving sales and use taxes for a limited time during July and August. The waivers may not include all items and local sales taxes may still apply in some locations.
"This is an excellent opportunity for working families, single parents and anyone else who needs a break to buy essentials and back-to-school items. Some states are even extending the 'holiday' to include personal computers and related equipment," said Mark Gurmond, Executive Director of the American Association of Debt Management Organizations (AADMO), the trade association for the credit counseling industry. "Families should be sure to check the items on the state's list of sales tax 'holiday' items. Depending on where you live, this may include baby clothes, school athletic gear and clothing, uniforms, footwear, and items placed on layaway."
The four new states offering sales holidays in 2006 are: Alabama, Maryland, Tennessee, and Virginia. Two states, Massachusetts and Rhode Island, have sales tax holidays pending but not scheduled for this year. In addition, New York, which has held tax holidays in previous years, now has a year-round exemption for clothing, footwear and items used to make or repair exempt clothing costing less than $110.
“There’s not a lot of evidence that tax holidays increase sales, but they’re popular with retail merchants and, needless to say, families with back-to-school expenses,” says CCH State Tax Analyst Dan Schibley, JD.
Regardless of whether these holidays increase sales or not, they can be extremely costly and difficult to administer. This is especially true when the waiver can’t be programmed into centralized systems because the business has multiple locations in which the local taxes may or may not be waived or the waiver only applies to taxes on specific categories of items, such as clothing or school supplies. Shoppers are cautioned to examine their receipts carefully to insure they get the complete benefit available to them.
The fact that more states are enacting sales tax holidays implies that they help the state’s economy. There is little evidence for this. Instead, it appears that tax holidays merely shift purchase dates, not inspiring additional purchases, so the state’s actually lose tax revenues during the holidays.
Here is a list of the states offering sales tax holidays in 2006, with the dates of the holiday and the types of items covered:
Alabama: From August 4-6, 2006, the following are exempt: clothing costing $100 or less per article; a single purchase costing $750 or less of computers, software and school computer supplies; noncommercial purchases of school supplies and instructional materials up to a sales price of $50 per item; and noncommercial purchases of books up to $30 each.
Connecticut: Clothing and footwear sold for less than $300 are exempt from sales and use tax from August 20-26, 2006. The holiday exemption replaces the regular exemption for clothing and footwear costing less than $50, which remains in effect for all other periods, and it does not apply to athletic or protective clothing and footwear, jewelry, handbags, luggage, umbrellas, wallets and watches.
District of Columbia: Sales of school supplies, clothing, accessory items and shoes for $100 or less are exempt from sales tax from August 5-13, 2006.
Florida: Books, clothing, footwear and certain accessories with a sales price of $50 or less per item, and school supplies with a sales price of $10 or less per item, are exempt from Florida sales and use tax from July 22-30, 2006. The exemption does not apply to sales within a theme park, entertainment complex, public lodging establishment or airport.
Georgia: From August 3-6, 2006, Georgia sales and use tax does not apply to certain school supplies (up to $20 per item); clothing and footwear (priced at $100 or less per article); computers, computer-related accessories and energy-efficient products for noncommercial use (for a single purchase of $1,500 or less).
Iowa: The state's sales tax holiday on select clothing and footwear runs August 4-5, 2006. During the holiday, no sales tax, including school and local option sales taxes, will be collected on clothing or footwear that have a selling price of less than $100 per item. Certain accessories are excluded from the tax holiday.
Maryland: From August 23-27, 2006, clothing and footwear (excluding accessories) costing $100 or less are exempt.
Massachusetts: Proposals for a holiday in 2006 are still pending in the Massachusetts legislature, but these have encountered opposition and their fate is uncertain. In 2004 and 2005, Massachusetts held a sales tax holiday the second weekend in August during which retail sales of practically any item costing $2,500 or less were exempt.
Missouri: From August 4-6, 2006, retail sales of the following are exempt from state sales tax: clothing and footwear (excluding certain accessories) costing $100 or less; school supplies costing $50 or less; computer software with a taxable value of $350 or less; and personal computers and computer peripheral devices sold for $3,500 or less. If less than 2 percent of a retailer's merchandise qualifies for the tax holiday, the retailer must offer a tax refund in lieu of the tax holiday.
New Mexico: Customers may buy the following items free of tax from August 4-6, 2006: clothing or shoes sold for less than $100 (excluding items primarily for athletic or protective use); computers (but not handheld computers) sold for no more than $1,000, and any associated monitor, speakers, printer, or related items sold for no more than $500; notebooks, paper, writing instruments, crayons, art supplies, paper clips, staples, staplers, scissors and rulers priced under $15; and book bags, backpacks, handheld calculators, maps and globes priced under $100. However, retailers are not required to participate.
North Carolina: The sales and use tax holiday runs from August 4-6, 2006. Exempt items are clothing and school supplies with a sales price of $100 or less; sports and recreation equipment with a sales price of $50 or less; computers with a sales price of $3,500 or less; and computer supplies costing $250 or less. Clothing accessories, protective equipment, furniture and rentals are not exempt during the holiday.
Rhode Island: Proposals that would have created a state sales tax holiday fell victim to the state’s budget woes and failed to pass during the recent General Assembly session.
South Carolina: During the period August 4-6, 2006, clothing, clothing accessories, footwear, school supplies, computers, printers, printer supplies, computer software and linens for the bed and bath are exempt from state and local sales tax. Certain items, including, but not limited to jewelry, cosmetics and furniture, are not exempt during the holiday.
Tennessee: Clothing and school supplies costing $100 or less and computers costing $1,500 or less are exempt from August 4-6, 2006.
Texas: From August 4-6, 2006, sales of most clothing and footwear priced at less than $100 are exempt from state and local sales taxes. Clothing and footwear used primarily for athletic activities or for protective wear are ineligible for the exemption. Accessories and rentals of clothing also are excluded from the holiday.
Virginia: Sales of clothing and footwear costing $100 or less and school supplies costing $20 or less are exempt from August 4-6, 2006.