California Lawmakers Miss Opportunity to Help Low-income Parents

Despite better ideas on how to truly help low-income parents of infants, California lawmakers took a route this July that spends a lot of money but doesn't sufficiently help the group in need of assistance. Why does this happen? There is plenty of data and a 2019 report from the Legislative Analysts Office pointing out that their law change won't provide as much help as it could have if better designed.

I'm talking about what started out in 2019 (SB 92, Chapter 34 (6/27/19)) as a two-year exemption (2020 and 2021) from sales tax for infant diapers and menstrual products. The state was required to transfer the lost revenue to local governments. SB 92 also required application of the accountability provision at Revenue & Taxation Code section 41 for the LAO to measure the effectiveness of the exemption in meeting the stated goal of promoting public health by increasing the affordability of and expanding access to diapers.

Prior to its expiration and before the LAO could complete its analysis, lawmakers extended the exemptions until July 1, 2023 and extended the due date for the LAO report to 7/1/22. (AB 85 (Chapter 8, 6/29/20)). Now, with AB 150 (Chapter 82 (7/16/21)), lawmakers have made the diaper and menstrual product exemptions permanent and cancelled the LAO report on the effectiveness of these exemptions.

I wrote about the weaknesses of the infant diaper sales tax exemption in 2019 (8/3/19 post), but repeat the highlights due to this recent example of missed opportunity to really help individuals in need which would end up benefitting us all via healthier babies, greater funds for low-income individuals, and less missed work.

While it may sound good to say you are helping public health and helping to make infant diapers more affordable, we need to ask more questions and apply critical thinking. In my earlier post, I noted that diapers cost between 11 cents per diaper up to 49 cents per diaper. Likely, the more expensive diapers are purchased by parents with more funds who don't need the sales tax savings (roughly 9 - 10% of the purchase price) and likely don't even notice the savings.* 

How much does this cost the state in lost revenue? Per the 2021-2021 tax expenditure report of the California Dept. of Finance, $76 million per year!

Prior to original enactment of the diaper exemption, the LAO told lawmakers that if they really wanted to help low-income families, providing greater subsidies to child care would be better. Per this 2019 report:

"the state can expand a program that addresses one of the biggest expenses parents face: child care. The state funds various types of subsidized child care for low-income families, but the number of eligible children typically exceeds the number of “slots” funded by the state. Due to this shortfall, the state fails to assist part of the targeted population and creates an inequity between those who receive slots and those who do not."

So, why isn't the $72 million per year used to really help low-income parents of infants? 

I think it is because we aren't asking enough questions such as: 

Which income group of parents gets the biggest savings from this tax break? It is the higher income taxpayers who spend more money on diapers and don't need the assistance (wasted spending).* Why are we subsidizing folks who don't need a subsidy?

Will reducing the cost of diapers by the 9 to 10.5 cents of sales tax per dollar help low-income individuals? Of course it offers some assistance, but we still have diaper banks in California and many struggle to pay the sticker price, not just the sales tax. 

What would provide better, more targeted help? Use the $72 million to help those who need it rather than those who do not. Provide diapers to child care centers who serve low-income workers.  I read a report last year on diaper banks for a Tax Notes State article on the need to fix the sales tax base. I learned that some parents get turned away from the child care center if they did not bring diapers for their child so then have to miss work to stay home with the child. Why not use $72 million to prevent this?

Why make the exemption permanent before its expiration date and before getting the analysis from the LAO on the effectiveness of the exemption?  Again, we all need to demand greater accountability from lawmakers regarding spending.

*I recently learned from reading an excellent book that I highly recommend reading (and hope all lawmakers read it) - Broke in America: Seeing, Understanding, and Ending US Poverty (2021), that some low-income individuals do end up spending more on diapers than would be charged if buying them in bulk from a big box retailer because they might not live near such a retailer and/or they don't have a lot of funds at once so buy the smaller package where the cost per diaper is higher.  Again, this calls out for doing better with taxpayer dollars than occurs with the now permanent California sales tax exemption on infant diapers.

What do you think?

Guest Post - Crazy Tax Deductions

I am pleased to post a guest blog from Colette Cassidy of All Finance Tax to bring some humor to filing season by reminding us of:

The Craziest Tax Deductions That Worked - Infographic

With less than a month to go until April 15th, the dreaded Tax Day, millions of people across America are frantically putting together their tax returns for the year. It’s not the most enjoyable of tasks, but it just needs to be done. Many of us will deliberate on certain items that may or may not require inclusion. Some will push the boat out and seek to claim tax back on pretty much anything – a bit like the parties featured in the infographic below, which was sent to us by Irish tax consultancy company All Finance Tax (www.allfinancetax.com).

What do all of these have in common, aside from all attempting to deduct tax on the most left-field of items? All of them succeeded, from the business owner whose company sponsored his motocross-racing son to the woman working from her condo who claimed that her work was being disrupted by noise from barking dogs in neighboring residences. In many of the cases featured, the IRS tried to put the foot down and say no, only to be overruled by the Tax Court.

This infographic provides an interesting and slightly bizarre roll call of some of the people who had the gumption to seek out the unlikeliest of tax deductions, stuck to their guns and were ultimately rewarded for it. That’s not to necessarily say that wacky tax deductions will work all of the time, but these cases show that it’s worth taking the time to go through all of your expenses and see which ones can be claimed back.

What do you think?

Another Affordable Care Act Oddity

To help more people obtain health insurance, the Affordable Care Act (ACA) provides a subsidy in the form of a refundable, advanceable tax credit - the Premium Tax Credit (PTC). Generally, if your household income is at least 100% of the Federal poverty line, but not over 400% of that line, and you are not offered affordable coverage from your employer, you are eligible.

For many people, their household income is roughly the same each month. But not for everyone. Perhaps you started the year with monthly income within the eligibility range and obtained subsidized insurance for those months. But, then you get a better paying job or a bonus (but still no offer of affordable health insurance from your employer), and your annual household income goes above 400% of the FPL?  Well, then you have to repay the subsidy you got in the earlier months even though for those months, you could not afford the coverage.

Sounds rough, but not easy to resolve.  If the PTC were changed to be based month by month on your income, it would favor those who can defer lots of income to the last month of the year. Perhaps the problem is more tied to the "cliff" in the PTC that causes someone to completely lose the subsidy once their income crosses the 400% of the FPL (more on that here).  And, all of this puts the PTC person in a situation that an employee with employer-subsidized coverage is not in. That is, there is no cliff that causes an employee to lose his or her income exclusion for what the employer pays towards the employee's health coverage.

What do you think would work to make the PTC more fair?

ACA - Affordability of health insurance and age

In filing our 2014 tax returns, we will all have to answer a new question (line 61 on the 2014 Form 1040) - did you and everyone in your family (spouses and dependents on the return) have health coverage for every month of 2014.  If anyone was lacking coverage for any month, they must next determine if they meet an exemption. If they do not, they owe the Individual Shared Responsibility Payment (penalty). One of the exemptions that many people might qualify for is that the health insurance available to them was unaffordable. If the employer offered coverage, you look at the cost of that coverage (cost less what employer contributes to that cost). If the employer did not offer coverage, you look at what the cost of coverage would have been in the Marketplace (Exchange). If you would have been eligible for a Premium Tax Credit (Section 36B), you must reduce that cost of Marketplace coverage by the credit you could have obtained.

That is a very quick summary of some fairly complex rules.  I want to point out that the measure of affordability to avoid the penalty is the same for everyone regardless of age, even though insurance costs more as we age.

For example, I pulled this information from the Covered California website (the state exchange for California).  I used a San Jose zip code and bronze level coverage (Bronze 60 PPO) for a single individual who does not have coverage through her employer.  Here is the annual cost of this coverage at these age levels:

25   $2,932
35   $3,452
45   $3,898
55   $5,692
64   $7,679

At an income level of $50,000, the individual is not eligible for a Premium Tax Credit because her income exceeds 400% of the federal poverty line, or $45,960.  For the unaffordable exemption, multiply household income (here, $50,000) by 8%.  If the cost is greater, the coverage is not affordable and this uninsured individual will avoid having to pay the Individual Shared Responsibility Payment.  Well, 8% of $50,000 is $4,000.  So, at age 55 and 64, this individual avoids the penalty and they attach Form 8965 to their return showing they meet the unaffordable exemption (the Form 8965 instructions explain the exemptions, as does Section 5000A and the regulations).

At ages 25, 35, and 45, this individual could have afforded coverage on the Marketplace (based on the 8% factor relevant in determining if the penalty applies). So, unless they meet some other exemption, they will owe the penalty (reported on line 61 of Form 1040; this is the Individual Shared Responsibility Payment).

Given that health insurance costs more as we age, why is 8% of household income the affordability measure for all individuals regardless of age? 

This example also illustrates that the Affordable Care Act does not help everyone get insurance. In this simple example, the individual at age 55 or 64 (or in between) and $50,000 of income, is not eligible for a Premium Tax Credit to subsidize the cost of coverage (because that income amount exceeds 400% of the federal poverty line). If no employer coverage is available and they truly cannot afford the cost of coverage through the Exchange (which likely is as low as they would get outside of the Exchange), they go uninsured.  The rules assume that when insurance costs more than 8% of income, it is unaffordable, yet that same unaffordable income level is too high to qualify for a subsidy (the credit). Something seems out of whack here.  Why doesn't the affordability factor consider age and eligibility for the credit (subsidy)? Or, why don't the credit (subsidy) rules factor in increasing cost of coverage as we age? While these rules may enable an older person to avoid the penalty, they don't result in health insurance coverage.

And one more point - how one spends their monthly income will vary from city to city due to cost of living differences. Here is a report from Zumper for August 2014 showing monthly rent for a one bedroom apartment as $3,100 in San Francisco, but only $590 in Indianapolis. Should availability of a premium tax credit factor in where you live rather than assuming anyone with household income over 400% of the federal poverty line (which is only higher for Hawaii and Alaska; but the same for the 48 contiguous states), can afford the lowest cost bronze level insurance without a subsidy?

What do you think?

For a brief overview to the credit and penalty, see IRS Publication 5187.

An odd result for Premium Tax Credit or is it?

A few people have already pointed out this oddity in the Affordable Care Act including National Taxpayer Advocate Nina Olson in her 2013 Annual Report to Congress. Her excerpt notes that in determining if a person had affordable health coverage available to them from an employer, the measure is whether the self-only lowest cost coverage available to the employee costs 8% of less. It doesn't matter if the family coverage offered by the employer is affordable. The relevance is that the family members won't qualify for a Premium Tax Credit.

That seems odd if no "affordable" coverage was offered to the rest of the family. Isn't that the point of the Affordable Care Act? To help make coverage affordable to everyone?

There is an example in the instructions to the new Form 8965, Health Care Exemptions. See Example 2 on page 8.  It involves a family with two children and $90,000 of household income. The mother's employer offers coverage to the mother (Susan), self-only coverage that costs $5,000. The employer also offers family coverage that costs $20,000. To avoid the Individual Shared Responsibility Payment (the new penalty of Code section 5000A that became effective starting in 2014), you need to have "minimum essential coverage" (basically employer or government or Marketplace provided coverage) or meet an exemption or pay the penalty. If Susan declines the self-only coverage, she likely will owe the penalty. This is because one key exemption - unaffordability, won't apply to her because the cost of her self-only coverage ($5,000) is less than 8% of household income ($7,200). She should see if another exemption applies (there are 9 categories of them - see page 2 of the instructions).

The Example 2 in the instructions goes on to note that if the family doesn't take the family coverage costing $20,000, the husband and two children will meet an exemption because at $20,000 cost, it is unaffordable as it exceeds 8% of household income. If Susan did not get the employer-provided coverage and doesn't have any other coverage or meet any other exemption, she owes a Shared Responsibility Payment (ISRP) of $697 for 2014. That will go on new line 61 of her 2014 Form 1040 (still in draft form as of 12/9/14). Her family members don't owe an ISRP (but they also don't have coverage).

What the example doesn't say (because it is looking only at the exemption from the penalty), is that because the family was offered employee self-only coverage that was affordable, the husband and children are not eligible for a Premium Tax Credit (PTC). (See FAQ8 from the IRS.) This may not be a big deal for this family because their income is close to 400% of the federal poverty line which is where the PTC ends.

But is it odd that eligibility for the PTC is based on the affordability of employee self-only coverage?  Seems that way.  Or, perhaps the goal is to encourage Susan to go to her employer and ask that the cost of family coverage be lowered.  She should at least ask that the employer not offer unaffordable coverage to her husband because then he would potentially be eligible for a PTC (I say potentially because household income is close to 400% of the federal poverty line).

We'll keep learning more as filing season begins and individuals and preparers start dealing with these rules to complete the 2014 Forms 1040.

More later on the PTC and ISRP and the employer shared responsibility payment (effective starting in 2015, but things to deal with now to get ready to avoid it).

What do you think?

Gun and ammunition taxes

A February 2013 article in Governing magazine - "Gun Taxes and State Revenues" by Lemov, notes that some states are proposing and even enacting taxes on guns and/or bullets. Last fall, Cook County in Illinois enacted a new $25 tax per gun sold in the county in shops (see Chicago Sun-Times article of 11/9/12).

On a recent MST exam, I asked students to apply a few principles of good tax policy to a proposal to impose a tax on bullets. A few students came up to me to ask for clarification of what the tax was because it seemed so odd.

Is it odd to impose a tax on guns or bullets.  A tax on guns sounds simpler and more administrable, assuming it is imposed on businesses that sell guns.  To try to collect it on non-business sales would be challenging, but not impossible if the gun also needs to be registered. A tax on bullets can be a bit more challenging, but again, can be imposed on the manufacturer or the retailer.

Exemptions seem appropriate for law enforcement agency purchases.

Why are some jurisdictions considering them? As noted in the Governing article, jurisdictions incur costs due to gun violence and the tax can help cover the costs and perhaps reduce gun sales.

Why is the Cook County tax only $25 per gun?  Why not higher? Of course, too high and only the wealthy can buy guns and those who can't afford the tax will find other ways to acquire the weapons.

And, there needs to be a self-assessment requirement for individuals who go outside of the jurisdiction to buy a gun.  That adds complexity unless the gun already needs to be registered in which case the tax can be collected at that point.

The gun tax is contrary to what I call a tax oddity in a few jurisdictions - a sales tax holiday on guns!

What do you think about these types of taxes?

Sales Tax Oddities - Food

A recent ruling in Florida is a reminder of the lack of logic and transparency in some of the special rules and exemptions common in sales tax laws. The question asked of the Florida Department of Revenue was when salad bar items and baked goods would and would not be subject to sales tax.

In Florida, as well as several states, if the food item is prepared for consumption on the premises (such as at a restaurant), sales tax applies. So, what about when your grocery store has a salad bar? Does it matter if a customer eats it in store, in the parking lot, at home?  Not really. It depends on whether the person could eat it in the store, such as because there are tables and chairs by the salad bar. Does it matter if the store also gives you a fork?

Well, if you could eat your salad at the store, sales tax must be charged. Per the ruling:

"Taxpayer’s sales of salad bar items are taxable at the two stores that have tables and chairs because these items are prepared foods sold for immediate consumption. Sales of salad bar items at the store that does not have tables and chairs are exempt when packaged without eating utensils."

And here are the rulings regarding deli items prepared on the premises as well as baked goods:

"Deli Salads. Taxpayer’s sale of deli salads (i.e., chicken, tuna, egg, and potato) is taxable because the salads are not prepared off the premises and sold in the original sealed container. The exception for prepared food sliced into smaller portions provided in s. 212.08(1)(c)9., F.S., does not apply because the repackaging of the deli salads by store employees does not involve slicing."

"Bakery Products. Taxpayer’s sales of the bakery products are exempt, since they are packaged in a manner consistent with an intention by the customer to consume the products off the seller’s premises."

It would be much easier and more transparent* to either tax all food or none of it. When there are exceptions and special rules, then the tax agency needs to define the exemptions, issue rulings and publications, and confirm compliance via audits. And, taxpayers are confused because it seems that the end result is the same whether or not there are tables, chairs or a packaged fork - they get to consume the salad.

* transparency - when taxes apply and how they apply should be clear. No hidden taxes.

For the ruling, see FL Technical Assistance Advisement – TAA 12A-021 (9/13/12).

What do you think?

Local sales tax oddity - CA cities and Amazon

"Apricot capital of the world" located 90 miles SE of San Francisco, future home of an Amazon fulfillment center

A May 19, 2012 article in the Los Angeles Times by Mark Lifsher, "Amazon poised to get a cut of California sales taxes," is a reminder of a tax oddity in California and perhaps other states as well. In California (and some other states), when you purchase a taxable item at a store, the store charges you the sales tax rate for the city in which the store is located, even if you live elsewhere. This is an origin basis (or destination with the presumption that the customer will consume the item on the premises).  An alternative would be to ask customers where they reside and charge that rate (destination basis).

California cities love to have big box retailers within their borders because they generate revenue from all of the sales tax charged at the store even if the customers do not live in the city.  But, big box stores do pose costs for the city - traffic, for example.  A better deal is to have a corporate sales office in the city where goods are shipped from but there are not a lot of customers causing traffic. The sales tax goes to that city, but there are fewer costs.

Some California cities seemed to have planned ahead and enticed Amazon to set up fulfillment centers in their cities.  For sales from these centers to California customers, the local sales tax goes to the city with the center.

The LA Times article notes the two cities - San Bernardino and Patterson.  These cities will generate so much revenue, that they are considering sharing a portion of it with Amazon, sort of a reward.  Per the article: "It's a windfall so lucrative — about $8 million a year initially for each city — that local officials are preparing to give Amazon the lion's share of their take as a reward for setting up shop there."

The article notes that the legislature may reintroduce a proposal from the past to prevent cities from returning sales tax collections to companies.

When you think about it, it is just odd.  When you pay tax, you believe it is for government operations. But if the Amazon deal with the cities goes through, the revenue will go to a big corporation to do what they please.  While you might think this is not different from a tax law providing a special deduction, exclusion or credit, it is different. The special tax rule has requirements to be met (including doing something in the state) and usually is only of benefit when the company is profitable.  The sales tax rebate is a sharing of government revenues that are only to be used directly by the government.  And, what is to keep other businesses in the city asking for the same deal?

What do you think?

Tax oddities and challenges of compliance

An article in BloombergBusinessweek - "Yoga Gets Off the Mat to Fight New York's Tax Man" by Caroline Winter (4/4/12), is a reminder that when tax rules are odd, such as having narrow exemptions or complicated definitions of what is taxable and what is not, it can lead to compliance problems. For example, when some narrow category of items becomes subject to sales tax, those providing the service might not know and when a rule is odd, people would not logically think that the transaction is taxable.

The article notes that some yoga studios in New York City were not aware that since last April (2011) they have been subject to the city's sales tax. Per the article New York City decided "that yoga studios be categorized as fitness centers, instead of movement spaces, and thus subject to a sales tax rate of 4.5 percent. (Dance studios aren’t taxed.) The change isn’t very new—it went on the books last April—but New York studio owners say they were never notified. That is, not until auditors started showing up in January and fining studios for back taxes for as much as three years."

An April 2011 Tax Bulletin ST-329 (TB-ST-329) from the New York State Department of Finance and Taxation, is a great example of how peculiar and laughable a poorly designed tax system can be. For example, it states:

"New York State makes a distinction between health and fitness clubs and athletic clubs. New York State and local sales taxes are imposed on dues and membership fees paid to any athletic club in the state. An athletic club is any club or organization whose material purpose or activity is the practice, participation in, or promotion of any sports or athletics (for example, a Judo club or curling club). However, a facility that provides steam baths, saunas, rowing machines, or other exercise equipment, or that promotes exercising solely for health or weight reduction purposes, as contrasted to sports, is not considered to be an athletic club."

It seems a bit odd that both activities are described as a "club" and involve physical activity, yet taxed differently. 


So, it is not the state of New York that is taxing the yoga salons, but New York City.  Some states and their cities do not have the same sales tax base making compliance even more difficult for vendors!  Per the 2011 Tax Bulletin:


"New York City imposes its local sales tax on every sale of services by weight control salons, health salons, gymnasiums, Turkish and sauna baths, and similar facilities, including any charge for the use of these facilities. This tax does not apply to any of these facilities located outside of New York City. Therefore, dues, membership and initiation fees, and any charges paid for the use of these facilities located in New York City are subject to the New York City local sales tax. However, if a facility also provides access to participant sporting activities and facilities, such as a swimming pool or racquetball courts, to its members, the facility is not considered to be a weight control salon, health salon, gymnasium, or other establishment for New York City sales tax purposes"

Wow!

How to simplify?  Apply sales tax to all goods and services consumed by individuals as final consumers and lower the rate.  Perhaps some necessities should be exempt such as non-elective medical services.  I suggest taxing food and finding another way to provide relief to low-income individuals such as through a refundable income tax credit or provision of debit cards for use throughout the year (ideally attached to the cardholder's bank account including accounts paid for by the state). The reason is that higher income taxpayers spend a lot more on food so exempting it provides a big tax break to individuals who do not need it.  With this design changes, we would not have oddities of knowing whether a yoga class or health club dues are subject to tax - they would be because purchased by a consumer.

What do you think?

More - see 21st Century Taxation website - here.

The oddities and complexities of tax exemptions

A simple tax system would define the tax base and not have exemptions. When something(s) get carved out for different treatment, it is usually difficult to define that carved out item. Same thing when something is going to be taxed at a different rate. Two recent examples.

1. On March 6, 2012, the Missouri Supreme Court issued a ruling in Aquila Foreign Qualifications Corporation v. Dept of Revenue, No. SC91784. Aquila is a utility company selling electricity. One of its customers is a convenience store that also prepared food. The store tried to avail itself of a special sales tax exemption for processing so that it did not have to pay sales tax on the electricity used to prepare the food. The court upheld the Department of Revenue's denial of the exemption.  Per the court, the legislature "did not intend the term “processing” to include retail food preparation."

2. An article in the February 2012 Texas Tax Policy News explains the differences in definitions for "tangible personal property" and "motor vehicles" and how the sales tax exemption for "agriculture" equipment and the "motor vehicle tax agriculture exemption." operate.

Treating property, transactions, and activities the same broadens the tax base, allowing for lower tax rates. It also reduces compliance costs. But what about desires to incentive some activities or address spillover costs, such as are associated with R&D? Find the best way to define the activity. For example, if there are existing laws, such as patents, consider that. For example, allow a tax credit for the costs of patenting technology.

What do you think?

Tweaking Corporate Estimated Tax Payments - More Tax Oddities

H.R. 4380, the United States Manufacturing Enhancement Act of 2010, which passed in the House on July 21 (378 - 43) includes a revenue offset to generate money from yet another change in the time for payment of corporate estimated taxes. H.R. 4380 includes the following change:

"The percentage under paragraph (2) of section 561 of the Hiring Incentives to Restore Employment Act in effect on the date of the enactment of this Act is increased by 0.5 percentage points."

Here is the text of section 561 of the HIRE Act:

"SEC. 561. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.
Notwithstanding section 6655 of the Internal Revenue Code of 1986, in the case of a corporation with assets of not less than $1,000,000,000 (determined as of the end of the preceding taxable year)--
(1) the percentage under paragraph (1) of section 202(b) of the Corporate Estimated Tax Shift Act of 2009 in effect on the date of the enactment of this Act is increased by 23 percentage points,
(2) the amount of any required installment of corporate estimated tax which is otherwise due in July, August, or September of 2015 shall be 121.5 percent of such amount,
(3) the amount of any required installment of corporate estimated tax which is otherwise due in July, August, or September of 2019 shall be 106.5 percent of such amount, and
(4) the amount of the next required installment after an installment referred to in paragraph (2) or (3) shall be appropriately reduced to reflect the amount of the increase by reason of such paragraph."

Problems:

1. Does anyone really know what the estimated tax payment is and when it is higher? Also, HR 4860 is not the only proposal to increase the percentage (see my post of July 1, 2010).
2. Calling something a revenue raiser does not make it so. This just requires that corporations pay more of estimated taxes. It doesn't increase what they owe! That's why I call this practice - which we see often, a tax oddity.

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.