Many states have annual sales tax holiday, during which selected goods are exempted from state sales taxes. Shoppers take advantage of items such as clothing, school supplies, footwear, and other savings (Evans, 2013). Pennsylvania, however, does not have sales tax holidays (Fisher, 2019). But, shoppers do not have to live in these states as they can visit and take advantage of their tax-free holidays.
Sales tax holidays can have a significant impact on the economy of a state. At first glance, sales tax holidays seem like a great policy. The proponent of sales tax holidays argues that tax exemptions provide tax cuts and benefits to low-income consumers (Cao, 2017). They also claim that sales tax holidays improve sales for retailers and stimulate economic growth of a state. Supporters claim consumers will purchase more of the excepted goods as well as increase their consumption of nonexempted products through “impulse” purchases (Cao, 2017). Through this, the consumers will pay taxes that would otherwise not have been collected.
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However, it is worth noting that sales tax holidays introduce unjustifiable government distortions into the economy and do not promote economic growth. Sales tax holidays simply shift the timing of sales (New York State Department of Taxation and Finance, 2003). This is because shoppers tend to wait until holiday to purchase exempted goods. Therefore, in the weeks prior to and following the holiday, the sales are slowed. Sales tax holidays attract cross-border sales, and this will be a significant disadvantage to Pennsylvania since the state does not have sales tax holiday. During holidays, sales in Pennsylvania will be slowed and thus lose revenue. According to the Institute on Taxation and Economic Policy (2018), sales tax holiday may cost state and local government more than $250 million.
References
Cao, R. (2017). Sales tax holidays kick-off, meaning it’s back-to-school season. [Online]. Retrieved from: https://www.cnbc.com/2017/07/19/tax-free-holidays-are-coming-up-which-means-back-to-school-shopping-is-around-the-corner.html . Accessed 22 nd August 2019.
Evans, B. (2013). Economic analysis of the potential effects of a sales tax holiday in Ohio. Economic Center, University of Cincinnati.
Fisher, S. (2019). Tax-free holidays 2019. [Online]. Retrieved from: https://www.thebalance.com/tax-free-weekends-1358029 . Accessed 22 nd August 2019.
Institute on Taxation and Economic Policy. (2018). Sales tax holidays: An effective alternative to real sales tax reform. [Online]. Retrieved from: https://itep.org/sales-tax-holidays-an-ineffective-alternative-to-real-sales-tax-reform-4/ . Accessed 22 nd August 2019.
The New York State Department of Taxation and Finance. (2003). The New York states clothing exemption. Special Statistical Report, Office of Tax Policy Analysis.
