Tax holiday

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 IncludedPeriodDays
Alabama [6]clothing, computers, school supplies, books / severe weather preparedness3rd weekend in July / last weekend in February3
Arkansas [7]clothing, school supplies, books1st weekend in August2
Connecticutclothing3rd week in August7
District of Columbia [8]Repealed
Floridaclothing, school supplies, books2nd week in August3
Georgiaclothing, school supplies, computers1st weekend of August: REPEALED FOR 20174
Iowaclothing1st weekend of August2
Louisiana [9]all TPP - $2,500, hurricane preparedness items - $1,500, firearms, ammunition and hunting supplies1st weekend of September2
Massachusetts[10]Most items for which the sales tax would normally apply; purchases up to $2500 included2nd weekend of August2
Maryland [11]clothing & footwearAugust 14–207
Energy star productsFeb. 19-21, 20113
Missouri[12]clothing, school supplies, computers1st weekend in August3
New Mexicoclothing, school supplies, computers1st weekend of August3
North CarolinaRepealed as of July 1, 2014
Oklahomaclothing1st weekend of August3
South Carolinaclothing, school supplies, computers1st weekend of August3
Tennessee[13]clothing, school supplies, computersLast Friday of July3
Texas[14]clothing, diapers, backpacks, school supplies3rd weekend of August3
Virginiaclothing, school supplies, green appliances, hurricane preparedness itemsMay, August, October3

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

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