Sales tax holidays have been increasing in popularity around the United States over the past 10 years. A tax holiday is a specific period of time during which a state does not charge sales tax on certain types of products. It is especially common for the holidays to target school supplies and clothing near the beginning of the school year, but some states exempt other types of items as well. A few states even have multiple tax holidays for different types of items. In 2011, as many as 17 different states are participating in sales tax holidays.
But why are states willing to give up this revenue stream, even for a short time? The short answer is that states really are not in business to make money like the private sector. Although states must generate revenue in order to govern, a state's primary goal is not to make a profit.
Sales tax holidays further at least three different state objectives:
- Generate Sales for Businesses: One of a state's objectives is to further the interests of the businesses in the state. A tax holiday encourages consumers to shop, generating sales for state businesses. As a bonus, consumers in bordering states are often drawn into the states with the sales tax holiday which further increases sales for businesses.
- Make Necessary Products Less Expensive for Consumers: States require residents to send their children to school. By making necessary products like school supplies a little cheaper, even for a short period, states ensure that residents are prepared to meet their obligations and be productive members of society.
- Engender Good Will Among Voters: Ultimately, this is likely the most prevalent reason for the approval of these holidays. Each dollar a business makes or a consumer saves could translate into an extra vote at the polls during the next election.