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Sales Tax Holidays – State Governments Attempt to Improve the Staycation?

08.15.16 | SALT Chat

By a show of hands, how many of you took a staycation this summer?  Well, I see some hands in the air.  Not as many as I would have expected, but it probably has to do with states cutting back on the so-called sales tax holidays they have bestowed upon taxpayers.

Sales tax holidays are typically one to two week periods of time when lawmakers have decided it would be a great idea to suspend the sales tax on certain goods.  The holidays are typically scheduled to coincide with the beginning of the back-to-school shopping season and are generally targeted at items such as clothing and school supplies.  I think it’s safe to say that everyone loves a holiday, so why would states be cutting back on them? And why would a holiday that saves you money create a controversy?

A recent study issued by The Tax Foundation reports that only 17 states will celebrate in 2016 with sales tax holidays.  The decrease in popularity is likely tied to at least three factors: the inability to determine whether overall revenue to the states increased as a result of the holiday; the clear ability to determine that tax revenue actually decreases during the holiday period; and the compliance nightmares caused for retailers.

I still remember reading the newly issued New York State budget legislation in 1996. I thought for sure there must be a mistake.  Why are some items for certain days of the year exempt from the State portion of the sales tax?  Counties could opt-in but were not required to refrain from collecting their portion of the tax.  The calls from our retail clients started immediately. Retail clients had absolutely no idea how they would modify their systems to deal with the holiday, let alone return to normal once the vacation was over.

So while the popularity of the sales tax holiday has been tarnished to some degree, I’m sure that the staycation is just as popular as ever.

Should you have questions regarding state and local tax issues, contact me at WBerkowitz@berdonllp.com or your Berdon advisor.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, New York Accountants, advises on the unique requirements of governments and municipalities across the nation.