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State Tax Holidays: Are these Vacations from Tax Really Beneficial?

September 7th

This time of year, many states hold sales-tax holidays, during which consumers can purchase a wide range of products tax-free. At these times eager customers can save money on clothing, electronics, and a variety of other goods.

In theory these holidays are good for the public: they save cash-strapped taxpayers a bit of money, bring business into struggling businesses, and allow politicians to feel that they are supporting tax relief.

However, as states continue to struggle with immense budget deficits, the debate is waging as to whether or not these tax-free holidays are actually a good idea.

The Cost of a Tax-Free Holiday

These holidays may save consumers a bit of cash, here and there, but they can be extremely costly to the states that hold them. Sales tax-free holidays can range in duration from a weekend all the way up to a full week, and in that time, the state must give up that portion of their revenue.

Estimates show that during their sales-tax holiday, Massachusetts will forfeit $20 million to $25 million this year. Last year the state showed similar losses, with a total of $20 million. Similarly, the state of North Carolina last year estimated it lost $14.5 million in potential tax revenue during their back-to-school tax-free holiday.

In addition to the extensive financial cost of such a holiday, many states end up swamped in bureaucracy. A significant amount of work goes in to organizing a tax-free holiday. Retailers and revenue departments, as well as local governments, must monitor and document a substantial array of items.

An End to Sales Tax-Free Holidays?

Many critics feel that the business brought in by sales tax-free holidays is not worth the extensive administrative and financial cost of holding such an event. Subsequently, a number of states have cancelled their annual tax-free holidays.

With many states having to face significant cuts to their budget for public schools, health services, and municipal budgets, it becomes harder to justify the luxury of a tax-free weekend.

 

 
 
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