The tax-free holiday
Date posted: August 27, 2012
Many states, including North Carolina, now have a limited number of days where certain retail purchases will not be subject to a sales tax. N.C. State University economist Mike Walden outlines the impact of these so-called tax-free holidays.
“And we just went through this for North Carolina. In fact, North Carolina is one of 20 states that now have these tax-free holidays. They usually occur over a weekend right before the public schools open.
“There have actually been several studies now, … because these have been in existence for several years, of the economic impacts of tax-free holidays. And there are two major conclusions that emerge from these studies: First, states actually lose money during these tax-free holidays. Sales tax revenues fall for states somewhere between 1 percent and 7 percent during the month of the tax-free holiday.
“Secondly, there is going to be substantial shifting by customers of when they buy items to take advantage of the tax-free holiday. And this shifting, of course, if it occurs, means that you’re not going to have new spending. The shifting has varied in terms of its size among different studies — somewhere between 30 and 90 percent of the sales will simply be shifted sales. That means that the extreme spending may rise only by 10 percent.
“Still though, the tax-free holiday is certainly a good deal for both buyers and sellers.”
Category: Economic Perspective