Search This Blog

Loading...

Thursday, March 4, 2010

Tax Oddities - Sales Tax Holidays

Several states have sales tax holidays where for some period of time - perhaps a weekend or a full week, there is no sales tax owed on particular items. For example, there might be a one week sales tax holiday on children's clothing or school supplies before school begins in the fall.

The Federation of Tax Administrators (FTA) has a list of most of these holidays. California has no sales tax holidays which is a good thing. [Well, that really isn't true because there are some goods that should have sales tax applied, such as digital goods purchased by individual consumers, entertainment and personal services, that enjoy a year round sales tax holiday.]

There is a news story today that caught my eye because it is just odd - the West Virginia House of Delegates passed a bill (HB 4521) calling for a sales tax holiday on guns purchased during the first weekend in October. The story from The State Journal ("Delegates approve gun sales tax holiday," 3/4/10) notes that the state might make up the lost revenue from the increased sale of ammunition and other items sold by gun stores!

The article and FTA list note that a few states already have a gun sales tax holiday.

Observations:
  1. This is just odd - why single out guns and exempt them from tax for two days?
  2. Isolated and short-term exemptions are poorly targeted to provide relief to taxpayers who need it. Even a very wealthy person who can easily afford to pay sales tax on his/her gun purchase gets the exemption.
  3. It is complicated for vendors to deal with due to extra recordkeeping.
  4. A tax break for one group of taxpayers means that others will pay more, assuming revenue neutrality.
  5. Where will it stop? Other groups will step forward seeking a holiday for items purchased by their members.
  6. Vendors of goods subject to the sales tax holiday surely enjoy high sales during the holiday. What happens to them for the rest of the year?

The Tax Foundation has a great report explaining sales tax holidays "as politically expedient, but poor tax policy" (8/09) - here.

No comments: