Tax holiday

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Not to be confused with Legal holidays by state

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A tax holiday is a temporary reduction or elimination of a tax. It is synonymous with tax abatement, tax subsidy or tax reduction. Governments usually create tax holidays as incentives for business investment. Tax holidays have been granted by governments at national, sub-national, and local levels, and have included income, property, sales, VAT, and other taxes. Some tax holidays are extra-statutory concessions, where governing bodies grant a reduction in tax that is not necessarily authorized within the law. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting foreign direct investment or stimulating growth in selected industries.

A tax holiday may be granted to particular activities,[1] in particular to develop a given area of business,[2] or to particular taxpayers.[3] Researchers found that on sales tax holidays, households increase the quantities of clothing and shoes bought by over 49% and 45%, respectively, relative to what they buy on average.[4]

Sales tax holidays in the United States

In New York, a statewide sales tax holiday was first enacted by the New York legislature in 1996, enabling the first tax-free week in January 1997. Local governments in New York were given the option of whether or not to participate; most declined.[5] Since then, the initiative has been adopted by thirteen states. It commonly takes the form of tax-free weekend lasting Friday through Sunday, usually during a major shopping period for necessities, such as just before school starts. During that period, sales tax is not collected on selected items, such as clothing and school supplies. The items subject to the sales tax exemption may also be restricted by price (e.g., clothing up to $100), but consumers are free to buy unlimited quantities of the included items.

As with other sales taxes, visiting residents of non-participating states who purchase tax-free goods (holiday or not) may still have to pay use tax on the goods they take home.

State (Or Capital) Items Included Period Days
Alabama clothing, computers, school supplies, books 1st weekend in August 3
Arkansas [6] clothing, school supplies, books 1st weekend in August 2
Connecticut clothing 3rd week in August 7
District of Columbia [7] Repealed
Florida clothing, school supplies, books 2nd week in August 3
Georgia clothing, school supplies, computers 1st weekend of August 4
Iowa clothing 1st weekend of August 2
Louisiana [8] all TPP - $2,500, hurricane preparedness items - $1,500, firearms, ammunition and hunting supplies 1st weekend of September 2
Massachusetts[9] school supplies, computers, firearms and ammunition, sports equipment, health & beauty aid 2nd weekend of August 2
Maryland [10] clothing & footwear August 14–20 7
Energy star products Feb. 19-21, 2011 3
Missouri[11] clothing, school supplies, computers 1st weekend in August 3
New Mexico clothing, school supplies, computers 1st weekend of August 3
North Carolina Repealed as of July 1, 2014
Oklahoma clothing 1st weekend of August 3
South Carolina clothing, school supplies, computers 1st weekend of August 3
Tennessee clothing, school supplies, computers 1st weekend of August 3
Texas[12] clothing, diapers, backpacks, school supplies 3rd weekend of August 3
Virginia clothing, school supplies, green appliances, hurricane preparedness items May, August, October 3

Five US states (Alaska, Delaware, Montana, New Hampshire, and Oregon) do not impose general sales taxes at all but may have excise taxes on specific categories of goods such as gasoline, E911, cigarettes, alcohol, or meals. See Sales taxes in the United States for details.

Some governments create tax-free weekends as incentives for business investment.

References

  1. ↑ For example, Indonesian tax holidays for certain investments.
  2. ↑ For example, New Jersey's Urban Enterprise Zones.
  3. ↑ For example, New York City property tax reduction programs.
  4. ↑ Federal Reserve Bank of Chicago, The Effect of Sales Tax Holidays on Household Consumption Patterns, July 2010
  5. ↑ http://www.ncsl.org/programs/pubs/1011tax.htm
  6. ↑ [1]
  7. ↑ [2]
  8. ↑ [3]
  9. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  10. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  11. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  12. ↑ Lua error in package.lua at line 80: module 'strict' not found.

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